An investment manager invests in a portfolio p such that it offers an expected excess return...
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An investment manager invests in a portfolio p such that it offers an expected excess return (E(rp) - rf) of 10.4% with p = 2.24. The manager decides to invest 40% of the portfolio wealth in an asset i where the correlation coefficient of the returns of asset i and a market index fund m is 0.7 and the standard deviation of i's return is 0.88. Calculate the new portfolio's required excess return, assuming that all assets and portfolios are priced along the SML. Note that the distribution of returns of the market index fund has a standard deviation equal to 1.2. An investment manager invests in a portfolio p such that it offers an expected excess return (E(rp) - rf) of 10.4% with p = 2.24. The manager decides to invest 40% of the portfolio wealth in an asset i where the correlation coefficient of the returns of asset i and a market index fund m is 0.7 and the standard deviation of i's return is 0.88. Calculate the new portfolio's required excess return, assuming that all assets and portfolios are priced along the SML. Note that the distribution of returns of the market index fund has a standard deviation equal to 1.2.
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Answer The new portfolios required excess return is 1104 Erp ... View the full answer
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