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Wealth Management Solution for Your Clients The expected return of a risky portfolio is 8%; the standard deviation of risky investment is 23%. The T-Bill rate is 2%.
a) If your client’s Risk Aversion Metric is 3, how much of his/her total wealth should invest in risky investment that maximize his or her utility.
b) What are the expected return and risk of the final portfolio that you select for your client?
c) What is the Sharpe Ratio of the final allocation strategy?
d) Can you increase the Sharpe Ratio by changing the weights of risk-free and risky investment?
e) How do the expected return, risk of risky investment, and client’s risk attitude affect clients’ demand for risky investment?
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ome financial theorists consider the variance of the distribution of expected rates of return to be a good measure of uncertainty.- Discuss the reasoning behind this measure of risk and its purpose.
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Consider a single factor APT. Portfolio A has a beta of 1.0 and an expected return of 16%. Portfolio B has a beta of 0.8 and an expected return of 12%. The risk-free rate of return is 6%. If you wanted to take advantage of an arbitrage opportunity, y..
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