The market has three risky assets. The variance-covariance matrix of the risky assets are as follows....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The market has three risky assets. The variance-covariance matrix of the risky assets are as follows. ri 12 13 r1 12 0.25 0 0 4 -0.2 0.1 Assume the market portfolio is M E(rm) = 0.08. = 13 -0.2 0.1 1 0.2 0 r₁ +0.50 r₂ + 0.3 0 r3. Further assume (a) What is the variance of M? (b) What is the covariance of r2 and M? (c) What is B₂? (d) If the rate of return of the risk-free asset is 0.02. Then what is the fair expected rate of return of security 2? (e) An investor wants to invest in a portfolio P = 0.40r₁+0.60r3. What is its "fair" expected rate of return? The market has three risky assets. The variance-covariance matrix of the risky assets are as follows. ri 12 13 r1 12 0.25 0 0 4 -0.2 0.1 Assume the market portfolio is M E(rm) = 0.08. = 13 -0.2 0.1 1 0.2 0 r₁ +0.50 r₂ + 0.3 0 r3. Further assume (a) What is the variance of M? (b) What is the covariance of r2 and M? (c) What is B₂? (d) If the rate of return of the risk-free asset is 0.02. Then what is the fair expected rate of return of security 2? (e) An investor wants to invest in a portfolio P = 0.40r₁+0.60r3. What is its "fair" expected rate of return?
Expert Answer:
Answer rating: 100% (QA)
a To find the variance of M we need to calculate the variance of each risky asset and then add them ... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
Decide if the following digraph can represent a relation of equivalence on the set {a, b, c, d}. b a C d
-
a. An analyst in a daily business segment broadcasted on the national TV quoted the following statement: Looking at the historical market prices of AB and CD stocks, we find that AB have been on an...
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
The City of Amarillo is authorized to issue $8,000,000, 3 percent regular serial bonds in 2017 for the construction of a new exit off the interstate highway within city limits. The bonds mature in...
-
In the article, "One's Sex, Sleep, and Posttraumatic Stress Disorder" (Biology of Sex Differences, Vol. 3, No. 29, pp. 1-7), I. Kobayashi et al. study the relationship between one's sex, sleep...
-
Determine the force in member BD and the components of the reaction at C. 24 in. 160 lb 10 in
-
On January 7, Red Tucker, Inc., paid $254,700 for equipment used in manufacturing automotive supplies. In addition to the basic purchase price, the company paid $500 transportation charges, $300...
-
Bob Lutz opened a secretarial school called Best Secretarial Training. a. Lutz contributed the following assets to the business: Cash .............$5,700 Computers .......... 4,300 Office Equipment...
-
Problem 2 (Total 30 marks): Two cubes made of soft linear-elastic materials are placed in a cavity of a steel box (as shown in the figure below). The Young's moduli and Poisson's ratios of the...
-
Raymond Constructions trial balance at December 31, 2020, is presented as follows. All 2020 transactions have been recorded except for the items described below. Unrecorded transactions: 1. On May 1,...
-
What role does restorative justice play in transforming conflicts into opportunities for healing, reconciliation, and community-building, particularly in cases involving harm, wrongdoing, and the...
-
Ethical Issue: You are part of the hiring committee for a hardware engineer position at your company. The two other hiring committee members are both men, and during the interviews you observe that...
-
When is it appropriate to use e-mail to send goodwill messages?
-
Social media have taken the world by storm; therefore, its not surprising that social networks have formed around various interests and pursuits. At least two major social networks have united people...
-
Explain four ways that persuasion has changed in the digital age.
-
What are some strategies to effectively manage adverse news on social networking sites and blogs?
-
After {fill_regular), yarns are used to make fabrics.
-
Evaluate the function at the given value(s) of the independent variable. Simplify the results. (x) = cos 2x (a) (0) (b) (- /4) (c) (/3) (d) ()
-
In Problems 110, solve each system of equations using the method of substitution or the method of elimination. If the system has no solution, state that it is inconsistent. - x - 2y = 4 = 0 3x + 2y...
-
In Problems 2740, use transformations of the graph of y = x 4 or y = x 5 to graph each function. f(x) = -x 4
-
In Problems 7992, find the real solutions, if any, of each equation. Use any method. x 2 + x = 4
-
Fill in the Blank. The \(\overline{\text { modal analysis basically }}\) _________ the equations of motion.
-
Fill in the Blank. The representation of an arbitrary \(n\)-dimensional vector as a linear combination of \(n\)-linearly independent vectors is known as _________ theorem.
-
Fill in the Blank. The _________ analysis is based on the expansion theorem.
Study smarter with the SolutionInn App