Adam Joe is a portfolio manager and has the information on the investments in the table...
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Adam Joe is a portfolio manager and has the information on the investments in the table below. A, B, and C are individual risky securities. M is the market portfolio. Risk-free rate is 4%. All returns are annual returns. Investment A B C M Expected Return 24.42% 29.86% 16.64% 18% Standard Deviation 30% 37% 22% 12% A 1 Correlation B 0.8171 1 C 0.8591 0.5528 1 M 0.5833 0.5991 0.4924 1 a. What is the covariance of Asset A with the market portfolio? (1 mark) b. Calculate the beta of Asset A and B. (2 marks) c. How will you divide your money between Asset A and Asset B if your aim is to achieve a portfolio with an expected return of 25% p.a.? What is the standard deviation of this portfolio? What is the systematic risk of this portfolio? (5 marks) d. How will you divide your money between the risk-free asset and the market portfolio if you are willing to bear a standard deviation of 15% p.a. for your portfolio? What is the expected return of this portfolio? (2 marks) e. Does any of the portfolios in parts (c) and (d) dominate the other? (2 marks) Adam Joe is a portfolio manager and has the information on the investments in the table below. A, B, and C are individual risky securities. M is the market portfolio. Risk-free rate is 4%. All returns are annual returns. Investment A B C M Expected Return 24.42% 29.86% 16.64% 18% Standard Deviation 30% 37% 22% 12% A 1 Correlation B 0.8171 1 C 0.8591 0.5528 1 M 0.5833 0.5991 0.4924 1 a. What is the covariance of Asset A with the market portfolio? (1 mark) b. Calculate the beta of Asset A and B. (2 marks) c. How will you divide your money between Asset A and Asset B if your aim is to achieve a portfolio with an expected return of 25% p.a.? What is the standard deviation of this portfolio? What is the systematic risk of this portfolio? (5 marks) d. How will you divide your money between the risk-free asset and the market portfolio if you are willing to bear a standard deviation of 15% p.a. for your portfolio? What is the expected return of this portfolio? (2 marks) e. Does any of the portfolios in parts (c) and (d) dominate the other? (2 marks)
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Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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