Exam 6: Capital Allocation to Risky 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 standard deviation of Bo's complete portfolio

According to the mean-variance criterion, which of the statements below is correct

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. If you want to form a portfolio with an expected rate of return of 0.10, what percentages of your money must you invest in the T-bill, X, and Y, respectively, if you keep X and Y in the same proportions to each other as in portfolio P

Which of the following statements is(are) false 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.

The capital allocation line can be described as the

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. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to

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 values of your positions in X and Y, respectively, if you decide to hold 40% of your money in the risky portfolio and 60% in T-bills

Discuss the differences between investors who are risk averse, risk neutral, and risk loving.

Consider a risky portfolio, A, with an expected rate of return of 0.15 and a standard deviation of 0.15, that lies on a given indifference curve.Which one of the following portfolios might lie on the same indifference curve

Toby and Hannah are two risk-averse investors.Toby is more risk-averse than Hannah.Draw one indifference curve for Toby and one indifference curve for Hannah on the same graph.Show how these curves illustrate their relative levels of risk aversion.