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Assignment Results 1 of 3 11/10/2019, 9:23 PM
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Refer to Table 6.3 and consider these three-year strategies: Three-In (fully invested in the risky portfolio in each of the three years); One-In (fully invested in the risky portfolio in one year, and in the risk-free asset in the other two); and Third-In-Three (one-third of the portfolio invested in the risky portfolio and the remainder in T-bills in each of the three years). a. Create a table like Table 6.3 for these three strategies. Strategy Three-In One-In Third-In-Three Risk premium R + R + R = 3 R 0 + 0 + R = R 3 × 1/3 R = R Variance σ 2 /3 Sharpe ratio Price of risk b. Which strategy has the lowest Sharpe ratio? One-In c. Which strategy provides the highest price of risk? Third-In-Three d. Suppose your risk aversion coefficient is A = 4, the expected return on the risky portfolio is 12%, the standard deviation of the risky portfolio is 20%, and the T-bill rate is 4%. If you were allocating your complete portfolio in any year between Three-In and T-bills, what
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