Assume that you can borrow and lend at a risk-free rate of 5%, and that the...
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Assume that you can borrow and lend at a risk-free rate of 5%, and that the tangency portfolio of risky assets has an expected return of 13% and a standard deviation of return of 16% 4.1 What is the highest level of expected return that can be obtained if you are willing to take on a standard deviation of returns that is at most equal to 24% ? Justify your answer. 4.2 Determine the fraction of your wealth (in percentage) invested in the risk-free asset that will yield the expected return found in question 4.1. Hence, deduce the fraction of the wealth invested in the tangency portfolio. Assume that you can borrow and lend at a risk-free rate of 5%, and that the tangency portfolio of risky assets has an expected return of 13% and a standard deviation of return of 16% 4.1 What is the highest level of expected return that can be obtained if you are willing to take on a standard deviation of returns that is at most equal to 24% ? Justify your answer. 4.2 Determine the fraction of your wealth (in percentage) invested in the risk-free asset that will yield the expected return found in question 4.1. Hence, deduce the fraction of the wealth invested in the tangency portfolio.
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Related Book For
Principles of Corporate Finance
ISBN: 978-0077404895
10th Edition
Authors: Richard A. Brealey, Stewart C. Myers, Franklin Allen
Posted Date:
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