+1-415-315-9853

info@mywordsolution.com

Statistics

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?

Statistics and Probability, Statistics

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

Have any Question?

Related Questions in Statistics and Probability

What is the difference between simple linear and multiple

What is the difference between simple linear and multiple regressions? Give an example of a situation where linear regression might be useful? Give an example of a situation where multiple regression might be useful?

What was the highest point of the popes power and what was

What was the highest point of the pope's power and what was the lowest point?

Suppose that the number of men equals the number of women

Suppose that the number of men equals the number of women, and that Vera is last on the preference list of every man. Prove that under every stable matching, Vera is matched to the same man. Who is the unlucky guy?

Two sets of chromium analyses were performed on water

Two sets of chromium analyses were performed on water samples from a stream that runs near a chromium plating plant:                  Before the spill                                After the spill Mean :           0.95 ...

1e model for a simple linear regression

1. Recall the model for a simple linear regression:  where  is Normally distributed with mean 0 and variance , where Cov( ) = 0 for all i, j and Cov(  = 0 for all i,j.A day trader wishes to develop a prediction model for ...

Suppose a new student honors societynbspalpha alpha

Suppose a new student honors society, Alpha Alpha Alpha, is going to start at Harvard. Alpha Alpha Alpha aims to be exclusive and only wants the best students.Currently, there are about 10,000 students enrolled at Harvar ...

1 your eccentric aunt has left you 50000 in alcan shares

1) Your eccentric aunt has left you \$50,000 in Alcan shares plus \$100,000 cash. Unfortunately, her will requires that the Alcan stock not be sold for one year and that \$60,000 cash must entirely be invested in T-bills wi ...

Identify a business related management problem translate

Identify a business related management problem translate the management problem into a hypothesis assumption accurately state the null hypothesis and alternative hypothesis.

One thousand people are enrolled in a 10 year cohort study

One thousand people are enrolled in a 10 year cohort study. At the start of the study, 100 have diagnosed CVD. Over the course of the study, 80 people who were free of CVD at baseline develop CVD. What is the cumulative ...

A sample of office assistants across the san francisco-bay

A sample of office assistants across the San Francisco-Bay Area was created. You want to build a model that will allow you to best predict a starting salary of potential new hires.  It was suggested that the data should ...

• 13,132 Experts

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.

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