Exam 6: Capital Allocation to Risky Assets

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You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.06

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C

You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with two risky securities, X and Y.The weights of X and Y in P are 0.60 and 0.40, respectively.X has an expected rate of return of 0.14 and variance of 0.01, and Y has an expected rate of return of 0.10 and a variance of 0.0081. What would be the dollar value of your positions in X, Y, and the T-bills, respectively, if you decide to hold a portfolio that has an expected outcome of $1,120

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B

Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills.The information below refers to these assets. Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills.The information below refers to these assets.   What are the proportions of stocks A, B, and C, respectively, in Bo's complete portfolio What are the proportions of stocks A, B, and C, respectively, in Bo's complete portfolio

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C

You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.13

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The change from a straight to a kinked capital allocation line is a result of

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Which of the following statements is(are) true I. Risk-averse investors reject investments that are fair games. II. Risk-neutral investors judge risky investments only by the expected returns. III. Risk-averse investors judge investments only by their riskiness. IV. Risk-loving investors will not engage in fair games.

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A reward-to-volatility ratio is useful in

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An investor invests 35% of his wealth in a risky asset with an expected rate of return of 0.18 and a variance of 0.10 and 65% in a T-bill that pays 4%.His portfolio's expected return and standard deviation are __________ and __________, respectively.

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What is a fair game Explain how the term relates to a risk-averse investor's attitude toward speculation and risk and how the utility function reflects this attitude.

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To build an indifference curve we can first find the utility of a portfolio with 100% in the risk-free asset, then

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You invest $1,000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.20

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You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a T-bill with a rate of return of 0.03. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.08

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Which of the following statements regarding risk-averse investors is true

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In the mean-standard deviation graph an indifference curve has a ________ slope.

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Draw graphs that represent indifference curves for the following investors: Harry, who is a risk-averse investor; Eddie, who is a risk-neutral investor; and Ozzie, who is a risk-loving investor.Discuss the nature of each curve and the reasons for its shape.

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You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a T-bill with a rate of return of 0.03. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to

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Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills.The information below refers to these assets. Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills.The information below refers to these assets.   What is the expected return on Bo's complete portfolio What is the expected return on Bo's complete portfolio

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Consider a T-bill with a rate of return of 5% and the following risky securities: Security A: E(r) = 0.15; Variance = 0.04 Security B: E(r) = 0.10; Variance = 0.0225 Security C: E(r) = 0.12; Variance = 0.01 Security D: E(r) = 0.13; Variance = 0.0625 From which set of portfolios, formed with the T-bill and any one of the four risky securities, would a risk-averse investor always choose his portfolio

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The certainty equivalent rate of a portfolio is

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In the utility function: U = E(r) - [-0.005As2], what is the significance of "A" A. A.This variable, as such, is not presented in most investments texts and it is important that the student understands how the investment advisor assigns a value to

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