Weights for investor to create her complete portfolio

Assignment Help Financial Management

Reference no: EM131960582

Suppose there is an investor with a very high risk tolerance. She could invest 100% of her wealth in a stock fund with s = 17% and E(r ) = 15%, or she could borrow, and invest in the Optimal Risky Portfolio which has s = 12% and E(r ) = 12%. Leverage would give her a higher E(r ) but with the same standard deviation as the stock fund (17%), if she can get a good borrowing rate.

a. Assuming she can borrow at the T-Bill (risk-free) rate of 2%, calculate the weights for the investor to create her Complete Portfolio.

b. Calculate the Expected Return for this Complete Portfolio.

c. Calculate the maximum interest rate at which the investor would be willing to borrow before she decided to just invest 100% in the Stock fund (assuming the same weights as you calculated in Part a). In other words, calculate the breakeven borrowing rate. Show your work. If you use Solver in Excel, provide a screenshot and explain your setup.

Reference no: EM131960582

Questions Cloud

What is the labour force participation rate : If the working age population is 366,547, what is the labour force participation rate?

Find the easiest to implement and use in a global setting : Which of the three sets of cultural dimensions do you think you would find the easiest to implement and use in a global setting?

Analyzing the alternative tax systems : A three page (750 words) detailed, well-written essay (APA) analyze and consider alternative tax systems-such as a flat tax or a sales tax- in comparison.

What is the present equivalent cost of each proposal : If the interest rate is 9%, what is the Present Equivalent cost of each proposal for a 10-year production period?

Weights for investor to create her complete portfolio : Calculate the weights for the investor to create her Complete Portfolio. Calculate the Expected Return for this Complete Portfolio.

Equilibrium quantity of milk : A new per unit tax imposed on milk consumers is Not a possible explanation that the equilibrium quantity of milk has fallen while the market price has increased

How do customs manners and social structure figure into mix : How do customs, manners and social structure figure into the mix? What special skills would be required to be an effective global leader?

Prepare a project for all schools : You are the principle of a high school, The governor is concerned about the increase of school shootings. The governor has tasked you prepare a project.

Represents the number of values to process : User will enter a value (size) which represents the number of values to process

User Account

All Pages