Due Time: 04/03/2012 in class
Name: _________________________
When you turn in your homework, please write down all your answers in order on a
separate sheet and attach your work showing how you get the answer for calculation
questions.
1. Asset A has an expected return of 15% and a rewardtovariability ratio (Sharpe ratio) of .4.
Asset B has an expected return of 20% and a rewardtovariability ratio (Sharpe ratio) of .3. A
riskaverse investor would prefer a portfolio using the riskfree asset and ______.
A. asset A
B. asset B
C. no risky asset
D. can't tell from the data given
2. Consider the following two investment alternatives. First, a risky portfolio that pays 20% rate
of return with a probability of 60% or 5% with a probability of 40%. Second, a treasury bill that
pays 6%. If you invest $50,000 in the risky portfolio, your expected profit would be _________.
A. $3,000
B. $7,000
C. $7,500
D. $10,000
Question 34 are based on the following information:
You are considering investing $1,000 in a complete portfolio. The complete portfolio is
composed of treasury bills that pay 5% and a risky portfolio, P, constructed with 2 risky
securities X and Y. The optimal weights of X and Y in P are 60% and 40% respectively. X has an
expected rate of return of 14% and Y has an expected rate of return of 10%.
3. If you decide to hold 25% of your complete portfolio in the risky portfolio and 75% in the
treasury bills then the dollar values of your positions in X and Y respectively would be
__________ and _________.
A. $100, $150
B. $150, $100
C. $300, $450
D. $450, $300
4. To form a complete portfolio with an expected rate of return of 11%, you should invest
__________ of your complete portfolio in treasury bills.
A. 19%
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 Spring '11
 Schneider
 Variance, Capital Asset Pricing Model, Modern portfolio theory

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