QUESTION 14 There are only 3 assets to invest in, all being risky. AAPL has an expected return of 10% and volatility of 15%. MSFT has an expected return of 12% and volatility of 18%. TSLA has an expected return of 20% and volatility of 30%. Investors can form risky portfolios out of these 3 assets. Which one of the following statements is correct? feasible risky On the expected return-volatility space, the set of portfolios is a curve that does not go through any of the 3 risky assets. 100% invested in MSFT is an inefficient portfolio. 100% invested in TSLA is an efficient portfolio. On the expected return-volatility space, the set of all feasible risky portfolios is a curve that goes through the 3 risky assets.
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- Given the non-satiation and risk aversion assumptions, which of the following five portfolios has the most desirable risk and return characteristics and thus will be chosen by investors ? The risk-free rate of return is 6%. (Explain or justify your answer briefly.) Portfolio Average Annual Return (%) Standard Deviation (%) R2 14 21 0.70 K 16 24 0.98 Q 24 28 0.96 17 25 0.92 11 18 0.60QUESTIONS: 1) Assuming that the risk-free rate of return is currently 3,2%, the market risk premium is 6% whereas the beta of HelloFresh SH. stock is 1.8, compute the required rate of return using CAPM. 2) Compute the value of each investment based on your required rate of return and interpret the results comparing with the market values. 3) Which investment would you select? Explain why using appropriate financial jargon (language). 4) Assume HelloFresh SH's CFO Mr. Christian Gaertner expects an earnings upturn resulting increase in growth (rate) of 1%. How does this affect your answers to Question 2 and 3? 5) AACSB Critical Thinking Questions: A) Companies pay rating agencies such as Moody's and S&P to rate their bonds, and the costs can be substantial. However, companies are not required to have their bonds rated in the first place; doing so is strictly voluntary. Why do you think they do it? (Textbook page: 198) B) What are the difficulties in using the PE ratio to value stock?…Assume you manage a risky portfolio with an expected rate of return of 15% and a standard deviation of 29%. The T-Bill Rate is 3.5%. You have a new client who has historically invested in a portfolio with a risk premium of 11% and a sigma of 22%. What is your client’s Risk Aversion? (rounded to two places) Group of answer choices 2.15 3.11 2.27 2.76 None of the above
- Assume that you are considering investing in two risky assets, namely PKX and XIY, with the following probability distribution. Assume that short selling is allowed. Stock РКХ XIY State of the world Probability Return (%) Return (%) 1 0.25 18 2 0.30 5 -3 3 0.20 12 15 4 0.10 4 12 0.15 6 1 1. Calculate the expected return and risk for each of these assets. Interpret. 2. Consider a portfolio that contains PKX and XIY. Note that XIY comprises 30% of the portfolio. What is the expected return and risk of this portfolio? 3. How will your answer in (2) change if XIY comprises 20% of the portfolio only? Comment on your findings.Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. What is the expected return of the complete portfolio? Group of answer choices a. 10.32% b. 5.28% c. 9.62% d. 8.44% e. 7.58%1)Please briefly define the following terms Risk Aversion Risk-Neutral Diversification Unsystematic Risk (also give examples) Systematic Risk (also give examples) 2)Please just list the four basic sources of long term funds. 3)Please explain the difference between the terms interest rate and required return by defining each. 4)Suppose you have a portfolio of Vestel and Turkcell with a beta of 1.8 and 0.9, respectively. If you put 29% of your money in Vestel, and the rest in Turkcell, what is the beta of your portfolio?
- 1. Suppose you have n risky assets you can combine in a portfolio. Each risky asset has an expected return of 8% and a standard deviation of 30%. The risky assets are uncorrelated with each other. (a) Consider an equally weighted portfolio of 2 of these securities. What is its expected return? What will its standard deviation be? (b) Consider an equally weighted portfolio of 30 of these securities. What is its expected return? What will its standard deviation be? (c) Suppose we let the number of these securities increase without bound. That is, n→ ∞o. What happens to the standard deviation of an equally weighted portfolio of these securities as the number of assets in the portfolio becomes extremely large? What will the riskless rate be in this case, and why? -int IDEAssume you have an optimal risky portfolio with an expected return of 17% and a standard deviation of 27%, if the current risk free rate is 5% what is the optimal percentage to invest in ORP (y*)? Please write all percentages as decimals (for example write .242 instead of 24.2%). Use a risk aversion measure (A) of 2. Note: Correct answer is 0.8230 Please explain?Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%. An investor who wishes to form a portfolio that lies to the right of the optimal risky portfolio on the Capital Allocation Line must: A. lend some of her money at the risk-free rate. B. borrow some money at the risk-free rate and invest in the optimal risky portfolio C. invest only in risky securities D. such a portfolio cannot be formed E. both borrow some money at the risk-free rate and invest in the optimal risky portfolio and invest only in risky securities
- QUESTION 4 There are only 2 assets to invest in, both being risky. AAPL has an expected return of 10% and volatility of 15%. MSFT has an expected return of 12% and volatility of 18%. Which one of the following statements is correct? On the expected return-volatility space, the set of all feasible risky portfolios is a straight line. On the expected return-volatility space, the set of all feasible risky portfolios is a curve that does not go through any of the 2 risky assets. 100% invested in MSFT is an efficient portfolio. 100% invested in AAPL is an efficient portfolio.Assume that there are two factors that price assets. Interest rate rf = 4%. You have thefollowing information about two well-diversified arbitrage-free risky portfolios. (a) Calculate the risk premium of the two risk factors. (b) There is a third well-diversified portfolio with β1 = 1.1 and β2 = 0.9. What is thisportfolio’s arbitrage free expected return? (c) Suppose the forecasted return of the portfolio in the question (b) is 13.5%. Show how youcould construct an arbitrage portfolio.Question #1. Portfolio theory tends to define risky investments in terms of just two factors: expectedreturns and variance (or standard deviation) of those expected returns. What assumptions need to be made about investors and the expected investment returns (one assumption in each case) to justify this ‘two-factor’ approach? Are these assumptions justified in real life? Question #2. ‘The expected return from a portfolio of securities is the average of the expected returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ ‘The expected standard deviation of returns from a portfolio of securities is the average of the standard deviations of returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ Are these statements correct? Question #3. What can be said about the portfolio that is represented by any point along the efficientfrontier of risky investment…