Quiz 2 Solution

Quiz 2 Solution - A optimal risky portfolio B risk-free...

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Quiz 2 FINA 469 -- Solution 1. Suppose you pay $9,700 for a $10,000 par Treasury bill maturing in three months. What is the holding period return for this investment? A. 3.01% B. 3.09% C. 12.42% D. 16.71% 7. Consider the CAPM. The risk-free rate is 5% and the expected return on the market is 15%. What is the beta on a stock with an expected return of 12%? a. .5 b . .7 c. 1.2 d. 1.4 3. Asset A has an expected return of 15% and a reward-to-variability ratio of .4. Asset B has an expected return of 20% and a reward-to-variability ratio of .3. A risk-averse investor would prefer a portfolio using the risk-free asset and _______. a . Asset A b. Asset B c. No risky asset d. Can't tell from the data given 4. An investor's degree of risk aversion will determine his or her ______.
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Unformatted text preview: A. optimal risky portfolio B. risk-free rate C. optimal mix of the risk-free asset and risky asset D. capital allocation line 5. You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a treasury bill with a rate of return of 6%. How much of your complete portfolio should be invested in the risky portfolio if you want your complete portfolio to have a standard deviation of 10%? What is the return rate on the complete portfolio if its standard deviation of return is 10%? Weight = 10%/20%=50% Return = 0.5*(6%+16%)=11%...
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This note was uploaded on 03/20/2012 for the course FINA 469 taught by Professor Zhang during the Spring '08 term at South Carolina.

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