Solution-Investor with mean-variance preference

Investor with mean-variance preference

Reference no: EM133113632

Please use the following information for this question.

Assets	Beta	Expected return
X	0.8	0.16
Y	1.4	0.16
M		0.15

where "M" refers to the market portfolio, and all other assets not listed in the above table are fairly priced according to CAPM. The risk-free rate is 0.05. Which statement below about the optimal risky portfolio of an investor with mean-variance preference is true?

A. In addition to the market portfolio, it should long on asset X and short on asset Y

B. In addition to the market portfolio, it should short on asset X and long on asset Y

C. In addition to the market portfolio, it should long on both asset X and asset Y

D. In addition to the market portfolio, it should short on both asset X and asset Y

E. It should include the market portfolio only, as 0.16 and 0.16 are fair expected returns for assets X and Y respectively

Reference no: EM133113632

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Investor with mean-variance preference

Reference no: EM133113632

Reference no: EM133113632

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