Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Statistics and Probability Expert

1) Use the variance-covariance matrix (∑) and the expected return vector (er) given in the table below, compute the set of weights which 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, find out the expected annual return and the annual standard deviation for that portfolio. Also compute the Sharpe Ratio.

3) For each of the individual assets which comprise the optimal portfolio which you determined in (1) and (2) above, compute 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) Use the results find outd 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 among 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 which you can charge annually for investors wanting to invest in your fund in order for investors to be indifferent among investing in your fund or in the optimal portfolio which you determined in step (2)?

7) Compute the betas for each of the individual assets that comprise the optimal portfolio with respect to that optimal portfolio.

8) Compute the expected returns using the betas that you determined in (8) and the market expected return that you find outd in (2). The risk free rate is still 3%. Are these expected returns consistent with the input data?

710_Expected return.jpg

Statistics and Probability, Statistics

  • Category:- Statistics and Probability
  • Reference No.:- M9939

Have any Question? 


Related Questions in Statistics and Probability

Designing and writing a report on a statistical study of

Designing and Writing a Report on a Statistical Study of Your Own Select a question of your own to investigate using one of the hypothesis tests studied in this class.  Explain why you chose the particular question to in ...

A cotton grower in south georgia produces cotton on farms

A cotton grower in South Georgia produces cotton on farms in Statesboro and Brooklet, ships it to cotton gins in Claxton and Millen where it is processed, and then sends it to distribution centers in Savannah, Perry, and ...

1 if the calculated value of t is less than the critical

1. If the calculated value of t is less than the critical value, do you reject or fail to reject the null hypothesis? Explain. 2. If you reject the null hypothesis (and conclude that the independent variable has an effec ...

Paper should be between 800 and 1000 words in length it is

Paper should be between 800 and 1,000 words in length. It is due according to the due date on the course calendar. 1. Drawing on the readings and lectures, name at least three developments or factors that encouraged the ...

Considering the effect that colonialism has had on the

Considering the effect that colonialism has had on the world today, how has and/or does Colonialism continue to affect the world? Choose one country or area that we have studied and discuss the continuing effects of colo ...

Consider the game in strategic form shown in table 1a find

Consider the game in strategic form shown in Table 1. a. Find the correlated equilibrium that maximizes the expected sum of the two players' payoffs. b. Find the correlated equilibrium that minimizes the expected sum of ...

The percentage of people who recycle their old phone books

The percentage of people who recycle their old phone books is 15.8% on average. If 240 people are randomly selected, what is the probability that more than 20% of them recycle their phone books?

A new process is proposed for the manufacture of steel

A new process is proposed for the manufacture of steel shafts, Data are 6.38, 6.40, 6.41, 6.38, 6.39, 6.36 and 6.37. Target is 6.40. a. What is the expected loss? b. What is the standard deviation?

Binomial stock option modelingsuppose you have the

Binomial Stock Option Modeling Suppose you have the opportunity to buy the following contract, a stock call option, on March 1. The contract allows you to buy 100 shares of XYZ stock at the end of either March, April, or ...

The following electoral method is used to choose the mayor

The following electoral method is used to choose the mayor of Whoville: Every resident ranks the candidates from most preferred to least preferred, and places this ranked list in a ballot box. Each candidate receives a n ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro