ugba07 - Summer 2008 Ismail Ceylan UGBA 103 Discussion...

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Unformatted text preview: Summer 2008 Ismail Ceylan UGBA 103 Discussion Section June 19, 2008 Page 1 of 3 Discussion Section #7 Problem 1: Mr. Mikhail OShaughnessy has allocated his wealth between the market portfolio and the risk free asset. The dollar amount invested in the market portfolio is seven times the dollar amount in the risk free asset. Further, we are given that the return on the market portfolio is expected to be 21% with a standard deviation of 20%. Assuming that the CAPM holds, indicate whether the following statements are true or false: a- Mr. Mikhail OShaughnessys portfolio has a beta of seven relative to the market portfolio. b- Mr. Mikhail OShaughnessys portfolio has a correlation of 0.875 with the market portfolio. c- 87.5% of the total risk of Mr. Mikhail OShaughnessys portfolio is unsystematic. d- The beta of Mr. Mikhail OShaughnessys portfolio relative to the market portfolio is 0.875. e- The return on Mr. Mikhail OShaughnessys portfolio is expected to be less than that on the market portfolio. f- All investors who do not want the standard deviation of their portfolio returns to exceed 0.175 will allocate their wealth between the market portfolio and the risk free asset in the same proportion as Mr. Mikhail OShaughnessy. g- The covariance between the returns on Mr. Mikhail OShaughnessys portfolio and returns on the market portfolio is 0.035....
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This note was uploaded on 02/12/2012 for the course UGBA 101A taught by Professor Mccullough during the Spring '08 term at University of California, Berkeley.

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ugba07 - Summer 2008 Ismail Ceylan UGBA 103 Discussion...

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