Homework2 - FINAN520 Homework2 Due Time: 04/03/2012 in...

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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 reward-to-variability ratio (Sharpe ratio) of .4. Asset B has an expected return of 20% and a reward-to-variability ratio (Sharpe 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 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 3-4 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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Homework2 - FINAN520 Homework2 Due Time: 04/03/2012 in...

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