Fred is a risk lover with a coefficient of risk aversion of negative one. Bank Bills...
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Fred is a risk lover with a coefficient of risk aversion of negative one. Bank Bills offer a return of 6 per cent per annum. Suppose that a portfolio has a standard deviation of returns on 10 per cent per annum. What is the minimum expected return on the risky portfolio for which Fred will prefer the risky portfolio to bank bills? (3 marks) Assuming that the Capital Asset Pricing Model is valid, is the following situation possible? (4 marks) Portfolio Portfolio A Risk free asset Market portfolio Expected Return 16% 10% 18% Standard Deviation 12% 0% 24% Fred is a risk lover with a coefficient of risk aversion of negative one. Bank Bills offer a return of 6 per cent per annum. Suppose that a portfolio has a standard deviation of returns on 10 per cent per annum. What is the minimum expected return on the risky portfolio for which Fred will prefer the risky portfolio to bank bills? (3 marks) Assuming that the Capital Asset Pricing Model is valid, is the following situation possible? (4 marks) Portfolio Portfolio A Risk free asset Market portfolio Expected Return 16% 10% 18% Standard Deviation 12% 0% 24%
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