Maximize the sharpe ratios of portfolios

Assignment Help Finance Basics
Reference no: EM133060570

Suppose you are a US investor looking for international diversification opportunities. Your investment advisor offers you an international equity index that expects annual returns of 18%, but the volatility of these returns is 48%. This international index comprises other developed countries as well as some emerging economies. The expected returns, volatility, and correlations are provided below:


Risk-Free Rate

US Equity Index Returns (annual)

International Equity Index Returns (annual)

Expected Returns

3%

8%

18%

Std. Deviation (Volatility)

0%

18%

48%

Correlation US Equity Index

0

1

0.4

Correlation International Equity Index

0

0.4

1

d. Suppose your investment advisor suggests adding the risk-free asset to the portfolio. In other words, your investment advisor recommends you to have a portfolio with three assets: risk-free rate, US equity index, and the International Equity Index. Using the following weights of the risk-free asset as the initial guess, estimate the portfolios that maximize the Sharpe ratios of those portfolios.

 

Risk-free asset

US Equity index returns (Weight)

International Equity index returns (Weight)

Expected Returns

Portfolio Standard Deviation

Slope of CAL (Sharpe Ratio)

1

100%

 

 

 

 

 

2

80%

 

 

 

 

 

3

60%

 

 

 

 

 

4

40%

 

 

 

 

 

5

20%

 

 

 

 

 

6

0%

 

 

 

 

 

e. Finally, suppose you do not use the weights for the risk-free asset in part d, but any other number you want to assume (as long as the weights of the 3-assets add up to 1). Find a portfolio that maximizes the Sharpe ratio?

Reference no: EM133060570

Questions Cloud

Find the expected return of the market : Find the expected return of the market. What is the risk-free rate of return? What is the market return?
Texas criminal justice system : How should Texas deal with increasing rates of incarceration? What do scholars and experts have to say about addressing this issue?
International diversification opportunities : Suppose you are a US investor looking for international diversification opportunities. Your investment advisor offers you an international equity index that exp
Humanitarian intervention in current international crisis : Have you applied such reasoning to calls for humanitarian intervention in any current international crisis?
Maximize the sharpe ratios of portfolios : Suppose you are a US investor looking for international diversification opportunities. Your investment advisor offers you an international equity index that exp
Value of the firm-trio corp : Trio Corp. will exist for one year. Its terminal cash flows next year will be $300,000 with probability 0.3, $500,000 with probability 0.3, or $800,000 with pro
Through the legislative process : What interest groups do you think will oppose/support your law as it goes through the legislative process?
Calculate the money supply and the money multiplier : Suppose that the required reserve ratio is 12%, excess reserve is $300 billion, excess reserve ratio is 0.2. Calculate the money supply and the money multiplier
Determining the remaining life expectancy : Assume Donald and Melania Turner are considering buying a joint life annuity. What remaining life expectancy would an insurance company selling them the annuity

Reviews

Write a Review

Finance Basics Questions & Answers

  Individual term life insurance policy

The house has a market value of $300,000, and the mortgage is $250,000. Jack has $100,000 of group term life insurance and an individual term life insurance.

  Construct lattice to determine value of european call option

Construct a lattice to determine the value of a European call option for a stock that has a current spot market price of $55, an upward (or downward).

  Project npv-temple corp

Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated.

  Determine the old and new break-even

You received an email from Carl operations manager for the California Container division. They produce packaging for cell phones. Carl understands that his product is an important cash producer for firm.

  Google that discusses unethical business research

Find an article using the University Library, Electronic Reserve Readings, or Google that discusses unethical business research conduct that has resulted in individuals or a firm being convicted, or at least tried for, this conduct. Some examples ..

  Determine accounts receivable turnover-albert ltd

Problem: Albert Ltd sells goods on cash as well as credit. The following particulars are extracted from their books of account.

  Substantive issues you must deal

What are you finding to be the most substantive issues you must deal with to maximize buy-in from your Board?

  Describe difference between investing and financing activity

In the context of the cash acquisition of a controlling interest form of business combination, how would you describe the difference between an investing activity and a financing activity? What is the importance of this distinction?

  Calculate the best-case and worst-case npv figures

Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±10 percent.

  What is the value of berzerk motors

What is the value of Berzerk Motors? What is the price per share of the company's stock?

  What would be the aftertax cost of the call premium

What would be the aftertax cost of the call premium at the end of year 13 (in dollar value)? (Omit the "tiny_mce_markerquot; sign in your response.)

  Bob and judy combine their savings of 1260 and 975

e5-1assume a firm makes a 2500 deposit into its money market account. if this account is currently paying 0.7 yes

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