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1. Using the variance-covariance matrix (∑) and the expected return vector (er) given in the appendix, calculate the set of weights that correspond to the portfolio that maximizes the Sharpe Ratio assuming a risk free rate of return of 3% per year, subject only to the constraint that the sum of the weights must be 1.2. For the portfolio derived in (1) above, determine the expected annual return and the annual standard deviation for that portfolio. Also determine the Sharpe Ratio.3. For each of the individual assets that comprise the optimal portfolio that you determined in (1) and (2) above, calculate the ratio of the expected return for each asset in excess of the risk-free rate to the marginal variance for that asset. Compare these values with the corresponding value for the portfolio as a whole. Is this what you expected? Why or why not?4. Using the results determined above, if an investor has a risk aversion factor of 1.3 (A), identify his investment allocation to each individual asset included in his overall portfolio. What is his expected return? What is the standard deviation of that portfolio?5. Repeat problem (4), but for an investor with a risk tolerance factor of 3.8 (A). Do the differences between the portfolio determined in (5) and the portfolio determined in (6) make sense? Why or why not?6. Say that you run a well-diversified mutual fund and the expected return on that fund is 16.2% and the standard deviation of that fund is 30.7%. What is the largest fee that you can charge annually for investors wanting to invest in your fund in order for investors to be indifferent between investing in your fund or in the optimal portfolio that you determined in step (2)?7. Calculate the betas for each of the individual assets that comprise the optimal portfolio with respect to that optimal portfolio.8. Calculate the expected returns using the betas that you determined in (8) and the market expected return that you calculated in (2). The risk free rate is still 3%. Are these expected returns consistent with the input data?
What is the Process of Investing in Securities ? There are several process of investing in securities:- (1) Finding a Broker (2) Selection of Brokers (3) Opening an Account w
Earnings Yield Valuation EY is given via the earnings made with the business expressed like a percentage of the market price of the business that is The Formula For Earning
Show that for any constant 0=a=1, C(aK1 + (1-a)K2) = aC(K1) + (1-a)C(K2) where C(k) is the European option price with strike K. All the options in this question are assumed to be
BalanceSheet format
Zoeckler Mowing & Landscaping''s year-end 2012 balance sheet lists current assets of $436,500, fixed assets of $551,500, current liabilities of $417,900, and long-term debt of $317
1. Each project has RM 10,000, and the cost of capital for each project is 12%. The projects' expected cash flows are as follows: Expected Net Cash Flows YEAR
Important Points for Capital Market Authority Apart from the above roles, CMA can assume the given steps to encourage progress of stock exchanges in US or other countries.
Differences between Debt and Preference Share Capital Differences between Debt and Preference Share Capital are given below: DEBT
Weaknesses of WACC as Discounting Rate WACC/Overall cost of capital has the following problems like a discounting rate as: It can simply be used as a discounting
Government Budget Deficit If the Government spends much more than it gets in from tax revenue, it runs a budget deficit. This deficit should be covered or financed either via
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