You want to optimize a portfolio composed of 3 assets. These are assets A, B and...

 

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You want to optimize a portfolio composed of 3 assets. These are assets A, B and C. Asset C is risk free. Assets A and B have a 8 of 1 and -0.05, respectively. Assume the risk free rate is 1% and the market portfolio return is 11%. 1. (8 points) What are the expected returns on assets A and B, given by the CAPM? 2. (8 points) Using the information from the previous points, what is the expected return of a portfolio if you invest 10%, 50%, and 40% in assets A, B, and C, respectively? 3. (14 points) Suppose, in the previous exercise, you want to choose the weights optimally to get a 7% target expected return. What are all the steps you have to carry out in order to perform this? Describe these and set the inputs and outputs you will need/obtain. You want to optimize a portfolio composed of 3 assets. These are assets A, B and C. Asset C is risk free. Assets A and B have a 8 of 1 and -0.05, respectively. Assume the risk free rate is 1% and the market portfolio return is 11%. 1. (8 points) What are the expected returns on assets A and B, given by the CAPM? 2. (8 points) Using the information from the previous points, what is the expected return of a portfolio if you invest 10%, 50%, and 40% in assets A, B, and C, respectively? 3. (14 points) Suppose, in the previous exercise, you want to choose the weights optimally to get a 7% target expected return. What are all the steps you have to carry out in order to perform this? Describe these and set the inputs and outputs you will need/obtain.

Answer rating: 100% (QA)

Rf is the riskfree rate B is the assets beta ERm is the expected return of the market portfolio wher... View the full answer