User Account

All Pages

Compute the expected return and standard deviation

Assignment Help Finance Basics
Reference no: EM132525360

You are a financial advisor who offers investment advice to your clients. There are two risky assets in the market: portfolio X and portfolio Y. X has an expected return of 15% and standard deviation of 35%. The expected return and standard deviation for Y is 20% and 45% respectively. The correlation between the two portfolios is 0.2. The rate of risk-free asset, T-bill, is 5%.

a) Peter is one of your clients and he can only invest in T-bill and one of the two risky portfolios. Which risky portfolio should he pick and why?

b) Compute the expected return and standard deviation of the optimal risky portfolio if the optimal risky portfolio is given by investing 50.48% in X and 49.52% in Y.

c) Mary is also your client and there are no restrictions on her investment. Mary's risk aversion level is 5. Based on part b, how do you advise Mary to allocate her money among risk-free asset, portfolio X, and portfolio Y?

d) Draw the best Capital Allocation Line (CAL) and calculate the slope of that CAL. Furthermore, indicate the positions of portfolios X, Y, and the optimal portfolio you proposed to Mary in part c on the graph.

e) Suppose the return of market portfolio is 17.48%, under CAPM, what are the betas for X and Y if they are in equilibrium?

f) If the beta of portfolio X turns out to be 0.9 and Y is in equilibrium, is there any arbitrage opportunity? If yes, how to exploit such opportunity using the existing assets?

Reference no: EM132525360

Questions Cloud

Describe the applications of fintech : Describe the applications of Fintech and data analytics to the banking sector
How businesses can improve their roe : Discuss how businesses can improve their ROE using Du Pont Analysis.
Equity for publicly listed companies in australia : Outline some of the principal factors that lie behind the generally accepted statement that the issue costs for debt are lower than those of equity for publicly
Calculate depreciation expense for year using straight-line : 1 October 2019 and that the accounting period ends on 30 June. Calculate the depreciation expense for the year 2019-20 using each
Compute the expected return and standard deviation : You are a financial advisor who offers investment advice to your clients. There are two risky assets in the market: portfolio X and portfolio Y. X has an expect
What is the price of the stock in year 5 : Consider a firm that has just paid a dividend of $2. An analyst expects dividends to grow at a rate of 8% per year for the next 5 years. After that dividends ar
Prepare the bank reconciliation for the company : The Global Action Company's Cash account in its general ledger reported a balance of $9,242 on May 31, 2014. Prepare the bank reconciliation for the company
Understanding of the efficient markets hypothesis : -b) Discuss whether the outcomes presented in this question are consistent with the EMH.
What is distinction between an overhaul and replacement : What is the distinction between an overhaul, replacement of a component, and day-to-day repairs and maintenance? Give an example of each

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd