What is reward-to-volatility sharpe ratio of risk portfolio

Assignment Help Portfolio Management

Reference no: EM133412384

Assignment:

You manage a risky portfolio with an expected rate of return of 16% and a standard deviation of 27%. The T-bill rate is 7%.

Questions:

a. Your client chooses to invest 80% of a portfolio in your fund and 20% in an essentially risk-free money market fund. What are the expected value and standard deviations of the rate of return on his portfolio?

b. Suppose that your risky portfolio includes the following investments in the given proportions: Stock A 25% Stock B 30% Stock C 45% What are the investment proportions of your client's overall portfolio, including the position in T-bills?

c. What is the reward-to-volatility (Sharpe) ratio (S) of your risky portfolio? Your client's?

d. Draw the CAL of your portfolio on an expected return-standard deviation diagram. What is the slope of the CAL? Show the position of your client on your fund's CAL.

Consider three client's preferences and scenarios in parts e to g:

e. Suppose that your client decides to invest in your portfolio a proportion y of the total investment budget so that the overall portfolio will have an expected rate of return of 14%.

(i) What is the proportion y?

(ii) What are your client's investment proportions in your three stocks and the T-bill fund?

(iii) What is the standard deviation of the rate of return on your client's portfolio?

f. Suppose that your client prefers to invest in your fund a proportion y that maximizes the expected return on the complete portfolio subject to the constraint that the complete portfolio's standard deviation will not exceed 18%.

(i) What is the investment proportion, y?

(ii) What is the expected rate of return on the complete portfolio?

g. Your client's degree of risk aversion is A = 5. Your client's expected utility function is assumed to be 1 2 ( ) 2 E U E r A (i) What proportion, y, of the total investment should be invested in your fund? (ii) What are the expected value and standard deviation of the rate of return on your client's optimized portfolio?

Reference no: EM133412384

Questions Cloud

Calculate book value of an asset : Reversing Rapids has a tax rate of 30%. The asset is sold at the end of year 4 for $11,973. Calculate book value of an asset. Round the answer to two decimals.

How can a firm hedge exchange rate risk : How can a firm hedge exchange rate risk? Why might a firm prefer to use one method over the other?

Description of bitcoin : Use a presentation software such as PowerPoint or Prezi to create your presentation about Bitcoin. Be sure to cite any resources for images and other content.

Determine the current intrinsic value for ibm : Use the two-stage dividend discount model to determine the current intrinsic value for IBM given these assumptions.

What is reward-to-volatility sharpe ratio of risk portfolio : Suppose that your risky portfolio includes the following investments in the given proportions: Stock A 25% Stock B 30% Stock C 45%.

Discuss how an investor can account for risk in a portfolio : Discuss how an investor can account for risk in a portfolio, including the need to adjust the risk of a portfolio relative to an investor's individual needs.

What is the current level of the accounts receivable : What would be the average collection period, if 70% of its credit sales customers will take the discount? What is the current level of the accounts receivable?

How is the money invested : How is the money invested? How did you choose where to invest your money, or how might you choose if you decide to start a retirement account in the future?

What is the holding period return on this bond : The Evergreen l Bank is planning on selling this bond at the end of 5 years for $1036.50. What is the holding period return on this bond?

User Account

All Pages