Question: Problem 1. 2 risky and 1 riskless asset. 33 points Suppose you are considering forming a portfolio on 2 risky assets and 1 risk free

Problem 1. 2 risky and 1 riskless asset. 33 points Suppose you are considering forming a portfolio on 2 risky assets and 1 risk free asset. The risky assets are Amazon and Ford. You know that: For Amazon, the expected return is 0.035978 and the standard deviation is 0.084561. For Ford, the expected return is 0.027433 and the standard deviation is 0. 150784. The correlation coefficient between Amazon and Ford is 0.077217. The risk free rate is 1.57%. a. Please report the expected return and standard deviation to a portfolio that invests 35% into Amazon and 65% into Ford. Make sure to indicate what formulas to use and to show your work. b. Build and graph a portfolio opportunity set like we did in class. You can use 10% increments in the weights. Also graph the capital allocation line. c. Please report the investment proportions in the minimum variance portfolio of the two risky assets. d. Report the minimum variance portfolios expected return and standard deviation. e. Find the optimal risky portfolio weights. f. Report the expected return, variance, standard deviation and sharpe ratio of the optimal risky portfolio. g. Suppose the clientele has a utility function akin to the one used in the midterm, with a risk aversion coefficient A = 4. Report the optimal weights to the risk free asset vs the risky portfolio. h. Suppose your client has $1,000,000 to invest in this setup. Report the % terms and dollar amounts of how much they invest into the risk free asset, Amazon and Ford. i. Comment on the correlation between Amazon and Ford. Do you think this portfolio is well diversified? Why or why not? In a few bullet points or sentences, suggest and explain a strategy to improve my proposed portfolio

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!

Exercise 3-14A (Algo) Effect of accounting events on the income statement and statement of cash flows LO 3-1, 3-2, 3-3 Required: Explain how each of the following events or series of events and the...

. Problem 1. 2 risky and 1 riskless asset. 33 points Suppose you are considering forming a portfolio on 2 risky assets and 1 risk free asset. The risky assets are Amazon and Ford. You know that:...

Problem 1: Optimal Risky Portfolio with Risk-Free Asset and Risky Asset (10 points) You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 29%. The T-bill...

Lecture 3: Portfolio Management-Characterizing the Return Distribution Lecture 3-4: Portfolio Management-A Risky and a Riskless Asset. I. Suppose there are three possible states at the end of the...

Question 1.1. The most important determinant of an investment's portfolio risk is which of the following? (Points : 1.5) The variance of the investment's return distribution The standard deviation of...

Need some help answering this sample midterm as soon as possible. 1. What is the future value of a 5-year ordinary annuity with quarterly payments of $75 evaluated using quarterly compounding with a...

The chart at the bottom corresponds with the questions Ald can be seen Fund U.S. Stock - Percent Arula frard Devotion Proin , , where is the mean 1 2. Based on the article provided to you in class,...

2. (16 Points) Suppose that investors can invest into three assets that earn the following expected returns: and have the following standard deviations (on the diagonal, in bold) and...

2. Given two assets with the following characteristics: E(RA)=0.16E(RB)=0.06A=0.12B=0.06A,B=0.50 a. What are the weights of A and B that would yield a minimum variance for the portfolio? What are the...

No information about Beta o standard deviation, only the weight for risky and riskless asset 2) POINTS 12: Suppose an economy is characterized by two investors, three risky assets and one risk-free...

A line of mens shirts was offered in a chain of retail stores at three prices: $32, $35, and $40. Weekly sales were monitored, producing totals at 30 stores in the chain (10 at each price). Which...

2. Assumption: Surfaces normal to x are isothermal,contact resistance between layers is negligible,radiation heat transfer is negligible. Find: Equivalent thermal circuit Hot fluid Th Upside surface:...

Employee payroll deductions become Question 2 5 options: 1 ) expenses to the company. 2 ) liabilities to the company until paid to third parties. 3 ) employee benefits expense. 4 ) paid - time off...

Determine the major differences between U.S. GAAP and IFRS disclosure reporting requirements related to each separately reportable operating segment. Next, give your opinion as to whether either U.S....