Unformatted text preview: R Y-r f β Y is called the Traynor Ratio of Y . What can be said of the Traynor Ratios of securities on the SML? (e) Suppose the security A has a Traynor Ratio of 4.5%. Is it overpriced or underpriced, according to CAPM? Explain. Question 3: Q 5 from Chapter 11 in the Workbook. Question 4: Suppose you hold 1 unit of security X , where μ X = 10% and σ X = 15% . Now suppose you are considering investing an additional amount of money, c in another security Y , where μ Y = 7% and σ Y = 10% . Suppose the correlation of the returns on X and Y is ρ . (a) How much should we invest in Y to generate a minimum variance portfolio (in dollar returns!) as a function of ρ . What is the return and standard deviation of this portfolio? (b) For what value(s) of ρ (if any) is the standard deviation of the new portfolio 1 / 2 that of the original portfolio? 1...
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This note was uploaded on 01/24/2011 for the course ACTSC 372 taught by Professor Maryhardy during the Fall '09 term at Waterloo.
- Fall '09