What is the reward-to-variability ratio

Assignment Help Financial Management

Reference no: EM132028295

There are three securities available for investment:

Security A has an expected return of 10% and standard deviation of 20%; Security B has an expected return of 15% and standard deviation of 25%;

Security C expected return of 8% and standard deviation of 0%. The covariance between the returns on the Security A and the Security B is -0.05.

a) What is the lowest level of risk (standard deviation) you can achieve by investing in the Security A and the Security B only? Show how you can create such portfolio.

b) What is the equation of the CAL connecting Security A and Security C? What is the reward-to-variability (Sharpe) ratio associated with this CAL?

c) If you decide to invest $50 in Security A and $150 in Security B, what are the expected return and the standard deviation of the resulting portfolio?

d) What should be a degree of risk aversion of an investor who is indifferent between investing in the Security A and the Security B?

Reference no: EM132028295

Questions Cloud

Instill a sense of ethical behavior into students : What is the best way to instill a sense of ethical behavior into students? Can ethics be taught? Defend position

Examples of open systems as opposed to closed systems : What are some examples of open systems as opposed to closed systems?

How much equity does tiggies have on its balance sheet : Tiggie's Dog Toys, Inc. reported a debt-to-equity ratio of 1.83 times at the end of 2015.

How should we approach the design of the menu : What are some of the types of navigation that you can create in Access 2016? How should we approach the design of the menu?

What is the reward-to-variability ratio : What is the equation of the CAL connecting Security A and Security C? What is the reward-to-variability (Sharpe) ratio associated with this CAL?

Products and global marketing efforts : Cultures around the world are becoming increasingly similar, so companies should standardize both their products and global marketing efforts.

What would be the amount of the new mortgage : What would be the amount of the new mortgage if the property were refinanced at the end of 5 years?

Typical ethics topics of development of gas pipelines : Rather than study the typical ethics topics of development of gas pipelines in new areas, or oil spills in various parts of the world, I wanted to put a positiv

Construct the cash budget table : Beginning accounts payables is $200. Wages, taxes, and other expenses are 16 percent of sales, and interest and dividends are $60 per quarter.

User Account

All Pages