Evaluating various investment opportunities

Assignment Help Microeconomics
Reference no: EM13844938

1. You are evaluating various investment opportunities currently available and you have cal- culated expected returns and standard deviations for five different well-diversified portfo- lios of risky assets:

Portfolio

Expected Return

Standard Deviation

Q

7.8%

10.5%

R

10.0

14.0

S

4.6

5.0

T

11.7

18.5

U

6.2

7.5

  1. For each portfolio, calculate the risk premium per unit of risk that you expect to re- ceive ([ ) - RFR]/σ). Assume that the risk-free rate is 3.0 percent.
    1. Using your computations in Part a, explain which of these five portfolios is most likely to be the market portfolio. Use your calculations to draw the capital market line (CML).

    2. If you are only willing to make an investment with σ = 7.0%, is it possible for you to earn a return of 7.0 percent?

    3. What is the minimum level of risk that would be necessary for an investment to earn

7.0 percent? What is the composition of the portfolio along the CML that will generate that expected return?

  1.  Suppose you are now willing to make an investment with σ = 18.2%. What would be the investment proportions in the riskless asset and the market portfolio for this port- folio? What is the expected return for this portfolio?

 

Reference no: EM13844938

Questions Cloud

The beta for the chelle computer company : The beta for the Chelle Computer Company
Were they need driven or ego driven : What power theories have you seen in action in your current or prior organizations? Were they need driven or ego driven? Discuss, giving examples
Compute the beta coefficient for each stock : Compute the beta coefficient for each stock
Calculate each fund managers average : Calculate each fund managers average
Evaluating various investment opportunities : evaluating various investment opportunities
Motivational process of the chief executive officer : What is the current motivational process of the chief executive officer (CEO) to effect the change? What is the current motivational process of the leaders and employees to accept the change
Compute the expected return for the following stocks : Compute the expected return for the following stocks
What effect would this have on the rfr and the r m : What effect would this have on the RFR and the R M
Efficient market hypothesis generated results : efficient market hypothesis generated results

Reviews

Write a Review

Microeconomics Questions & Answers

  The free rider problem

Question: Explain why the free rider problem makes it difficult for perfectly competitive markets to provide the Pareto efficient level of a public good.

  Failure of the super committee is good thing for economy

Some commentators have argued that the failure of the “Super committee” is good thing for the economy?  Do you agree?

  Case study analysis about optimum resource allocation

Case study analysis about optimum resource allocation: -  Why might you suspect (even without evidence) that the economy might not be able to produce all the schools and clinics the Ministers want? What constraints are there on an economy's productio..

  Fixed cost and vairiable cost

Questions:  :   Which of the following are likely to be fixed costs and which variable costs for a chocolate factory over the course of a month?  Explain your choice.

  Problem - total cost, average cost, marginal cost

Problem - Total Cost, Average Cost, Marginal Cost: -  Complete the following table of costs for a firm.  (Note: enter the figures in the  MC   column  between  outputs of  0 and 1, 1 and 2, 2 and 3, etc.)

  Oligopoly and demand curve problem

Problem based on Oligopoly and demand curve,  Draw and explain the demand curve facing each firm, and given this demand curve, does this mean that firms in the jeans industry do or do not compete against one another?

  Impact of external costs on resource allocation

Explain the impact of external costs and external benefits on resource allocation;  Why are public goods not produced in sufficient quantities by private markets?  Which of the following are examples of public goods (or services)? Delete the incorrec..

  Shifts in demand and movements along the demand curve

Describe the differences between shifts in demand and movements along the demand curve. What are the main factors which can shift the demand curve? Explain why they cause the demand curve to shift. Use examples and draw graphs to support your discuss..

  Article review question

Article Review Question: Read the following excerpts from the article "Fruit, veg costs surge' by Todd, Dagwell, published in the Herald on January 25th 2011 and answer questions below:

  Long-term growth, international trade & globalization

Long-term Growth, International Trade & Globalization:- This question deals with concepts such as long-term growth, international trade and globalization. Questions related to trade deficit, trade surplus, gains from trade, an international trade sce..

  European monetary union (emu) in crisis

"Does the economic bailout of Spain and Greece spell the beginning of the end for the European Monetary Union (EMU)?"

  Development game “settlers of catan”

Read the rules of the game, the overview and the almanac for the Development Game "Settlers of Catan"

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!

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