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- 3. The market has three assets. In addition, PAB = 0. F A B 0.2 0.3 1 3 E(r) 0.1 0 0 (a) If the investor can invest in the risk-free asset and one of the risky assets (either A or B, but not both). Will she choose A or B to construct a portfolio with the risk-free asset? Why? (Hint: you can draw a graph to answer this question.)b. Suppose that you have the following information of three risky assets. Security Return (%) Standard Covariance with Deviation (%) A B A 11 10 4 14 6. 30 17 Risk free rate = 6%, (assume that A = 6). Requirement: Find the optimal portfolio weight of risky assets. How do you allocate the capital between optimal portfolio of risky asset and risk-free assets.2. Assuming the following: Average Return (Risky Portfolio) 3.86% Standard Dev (Risky Portfolio) 10.56% Average Risk Free Rate 2.18% Return on Risk Free Asset Avg 4.15% Using the formula: E(rc)=rf + y* (E(rp) - rf) Solve for: 1. % of Risky Assets (y): 2. % of Risk Free Assets (1-y): Note: You wish to generate a 7% return for your complete portfolio E(rc)
- What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 25% SDA = 18% WA = 0.75 COVA, B = -0.0009 Select one: A. 13.65% B. 20 U ODN 20.0% C. 18.64% D. 22.5% Asset (B) E(R₂) = 15% SDB = 11% WB = 0.25The optimal proportion of the risky asset in the complete portfolio is given by the equation below y*= E(Rp− Rf) A0² For each of the variables on the right side of the equation, discuss the impact of the variable's effect on y* and why the nature of the relationship makes sense intuitively. Assume the investor is risk averseAssume the market has the following assets: Asset Expected Return (%) Standard Deviation (%) X 18% 10% Y 14% 8% Z 10% 12% Jayaraman is considering to invest in only ONE (1) asset from the list above. Explain his choice if he is (i) risk averse (ii) risk neutral (iii) risk seeking
- 1. Portfolio Choice 1 Assume that .02 E(R)-.18 and market) portfolio. Suppose that an investor's preferences are given by 3 where T. denotes the tangency (or U-ER)-20; where P denotes the investor's portfolio choice which combines proportion W of the market portfolio and proportion 1-W of the risk-free asset. A. Is this investor risk loving or risk averse? Please explain your reasoning. B. If the investor wants to maximize utility by allocating her wealth between the market portfolio and the risk-free asset, what proportion of wealth should she hold in the risk- free asset (1-W)? What is the risk and expected return of this utility-maximizing portfolio? Please explain your answers and illustrate graphically, being careful to label all axes.Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. What is the expected return of the complete portfolio? Group of answer choices a. 10.32% b. 5.28% c. 9.62% d. 8.44% e. 7.58%What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(RA) = 25% SDA = 18% WA = 0.75 COVAB= -0.0009 Asset (B) E(R₂) = 15% SDB = 11% W₁ = 0.25
- Q/ Demonstrating the formation of an investment portfolio from the two sides (G.H) if the rates of return are favorable for each of them As follows - RG = 0.16,0.24,0.26, 0.14,0.20 RII = 0.32,0.24,0.28,0.20,0.36 %3D Required 1- Assuming that the investor will shape this portfolio. He allocated u of his wealth to the first investment and 25% of it to the second investment, and the correlation coefficient = 1 %3D what is The expected rate of return for the portfolioWhat is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₁) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Asset (B) E(R₂) = 15% SDB = 9.5% WB = 0.75A portfolio has an expected rate of return of 0.15 and a standard deviation of 0.15. The risk-free rate is 6%. An investor has the following utility function: U = E(r) - (A/2)s2. Which value of A makes this investor indifferent between the risky portfolio and the risk-free asset? A. 5 B. 8 C. 6 D. 7