Required: a. If your risk-aversion coefficient is A = 4.9 and you believe that the entire 1927-2021 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is u = E(r) - 0.5 × Aσ². b. What if you believe that the 1975-1998 period is representative?
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- Consider the following money market information being quoted: Which of the following statements is true? Particulars GBP Interest Rate THB Interest Rate Spot Rate 1-year Expected Spot Rate Bid Rate 6.100% 10.550% THB5.6601/GBP THB5.9037/GBP C. Ask Rate 6.125% 10.625% THB5.6622/GBP THB5.9961/GBP a. There is an arbitrage which can only be made by initially borrowing GBP and then investing in THB. b. More than one of the options in this question are correct. The THB is selling at a premium to the GBP in the future. O d. There is an arbitrage which can only be made by initially borrowing THB and then investing in GBP.Refer the table below on the average excess return of the U.S. equity market and the standard deviation of that excess return. Suppose that the U.S. market is your risky portfolio. Period 1927-2021 1927-1950 1951-1974 1975-1998 1999-2021 Average Annual Returns U.S. equity 12.17 10.26 10.21 17.97 10.16 U.S. Equity Market Standard Deviation 20.25 26.57 20.32 14.40 18.85 1-Month T- Excess return 8.87 9.33 6.62 10.99 8.50 Bills 3.30 0.93 3.59 6.98 1.66 Sharpe Ratio 0.44 0.35 0.33 0.76 0.45 Required: a. If your risk-aversion coefficient is A = 3.5 and you believe that the entire 1927-2021 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is U = E(r) - 0.5 × Ag². b. What if you believe that the 1975-1998 period is representative?Refer the table below on the average excess return of the U.S. equity market and the standard deviation of that excess return. Suppose that the U.S. market is your risky portfolio. Average Annual Returns U.S. Equity Market U.S. 1-Month Excess Standard Sharpe Period equity T-Bills return Deviation Ratio 1927-2021 12.17 3.30 8.87 20.25 0.44 1927-1950 10.26 0.93 9.33 26.57 0.35 1951-1974 10.21 3.59 6.62 20.32 0.33 1975-1998 1999-2021 17.97 6.98 10.99 14.40 0.76 10.16 1.66 8.50 18.85 0.45 Required: a. If your risk-aversion coefficient is A = 3.7 and you believe that the entire 1927-2021 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is UB-0.5× Ao 2 b. What if you believe that the 1975-1998 period is representative? Complete this question by entering your answers in the tabs below. Required A Required B If your risk-aversion coefficient is A = 3.7 and you…
- 3. The following table gives actual data on the U.S. CPI and the S&P 500 total return index (SPTRI). CPI SPTRI 12/3 1/2011 226 2159 12/3 1/2012 230 2504 12/3 1/2013 233 3316 12/3 1/2014 235 3769 А. Use this data to compute the average annual nominal return and real return for two consecutive 1- year holding period returns of a sto ck portfolio that matches the S&P 500 total return index. (for example you could compute 2011-12 and 2012-2013) Please use continuous compounding. Express your final answer in percentage. В. Now compute the average annual real return to a 2-year holding -period portfolio of your two consecutive years. С. You have a friend who has been studying the stock market for the last few years and is about to invest $10,000 in a highly diversified portfolio. After 10 years, your friend expects to have over $66,000 in real dollars. You recall from your favorite report in Econ 135 that the average 10 year holding period return is about 7% with a standard deviation of 6%.…Question 1 The following are annual rates of return for T-bills in Ghana and Share on the Ghana Stock exchange Year T-bill Shares on Ghana Stock Exchange 2016 0.063 0.150 2017 0.081 0.043 2018 0.076 0.374 2019 0.090 0.192 2020 0.085 0.106 a. Compute the arithmetic mean rate of return and standard deviation of rates of return for the two series. b. Discuss these two alternative investments in terms of their arithmetic average rates of return, their absolute risk, and their relative risk. Compute the geometric mean rate of return for each of these investments. Compare the arithmetic mean return and geometric mean return for each investment and discuss the difference between mean returns as related to the standard deviation of each series.Use the following information on states of the economy and stock returns to calculate the standard deviation of returns. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Probability of State of Security Return if State Occurs State of Economy Economy 0.40 Recession Normal -5.50% 11.00 0.40 0.20 Вoom 17.00
- The following are annual rates of return for T-bills in Ghana and Share on the Ghana Stock exchange Year T-bill Shares on Ghana Stock Exchange2016 0.063 0.1502017 0.081 0.0432018 0.076 0.3742019 0.090 0.1922020 0.085 0.106a. Compute the arithmetic mean rate of return and standard deviation of rates of return for the two series. b. Discuss these two alternative investments in terms of their arithmetic average rates of return, their absolute risk, and their relative risk. c. Compute the geometric mean rate of return for each of these investments. Compare the arithmetic mean return and geometric mean return for each investment and discuss the difference between mean returns as related to the standard deviation of each series.Assume that you are given the following historical returns for the Market and Security J. Also assume that the expected risk-free rate for the coming year is 4.0 percent, while the expected market risk premium is 15.0 percent. Given this information, determine the required rate of return for Security J for the coming year, using CAPM. Year 1 2 O21.20% 3 4 5 6 O22.34% O 23.49% O24.63% O24.10% Market 10.00% 12.00% 16.00% 14.00% 12.00% 10.00% Security J 12.00% 14.00% 18.00% 22.00% 18.00% 14.00%You are analyzing a Time Series of historic market information and found the following information for a particular investment security: the Rate of Return in 2012 was -6.72%; was 18.22% in 2013; was 7.75% in 2014; was 11.45% in 2015; was 4.94% in 2016; and was 18.11% in 2017. What is the arithmetic average rate of return? Show your answer as a percentage rounded to two places (12.34% for example). Group of answer choices 7.64% 8.96% 8.14% 7.24% None of the above
- 2. An analyst wants to evaluate Portfolio X, consisting entirely of U.S. common stocks, using both the Treynor and Sharpe measures of portfolio performance. The following table provides the average annual rate of return for Portfolio X, the market portfolio (as measured by the Standard & Poor's 500 Index), and U.S. Treasury bills (T-bills) during the past eight years. Annual Average Standard Deviation Rate of Return of Return Beta Portfolio X 10% 18% 0.60 S&P 500 13 1.00 12 n/a T-bills n/a n/a = not applicable a. Calculate both the Treynor measure and the Sharpe measure for both Portfolio X and the S&P 500. Briefly explain whether Portfolio X underperformed, equaled, or outper- formed the S&P 500 on a risk-adjusted basis using both the Treynor measure and the Sharpe measure. b. Based on the performance of Portfolio X relative to the S&P 500 calculated in part (a), briefly explain the reason for the conflicting results when using the Treynor measure versus the Sharpe measure.An analyst wants to evaluate Portfolio X, consisting entirely of U.S. common stocks, using both the Treynor and Sharpe measures of portfolio performance. The following table provides the average annual rate of return for Portfolio X, the market portfolio (as measured by the Standard and Poor's 500 Index), and U.S. Treasury bills (T-bills) during the past eight years. Annual Average Standard Deviation Rate of Return of Return Beta Portfolio X 11% 18% 0.40 S&P 500 13 14 1.00 T-bills 6 n/a n/a n/a = not applicable a. Calculate both the Treynor measure and the Sharpe measure for both Portfolio X and the S&P 500. Round your answers for the Treynor measure to one decimal place and for the Sharpe measure to three decimal places. Treynor measure Sharpe measure Portfolio X S&P 500 % Briefly explain whether Portfolio X underperformed, equaled, or outperformed the S&P 500 on a risk-adjusted basis using both the Treynor measure and the Sharpe measure. Based on the Treynor measure Portfolio…You are given the following partial covariance and correlation tables from historical data: Securities J K Market Securities J K Market 1.24 1.11 1.17 1.03 Covariance Matrix K 0.90 J 0.0020480 0.0021600 Also, you have estimated that the market's standard deviation is 4.3 percent. For the coming year, the expected return on the market is 14.0 percent and the risk-free rate is expected to be 4.0 percent. Given this information, determine the beta for Security K for the coming year, assuming CAPM is the correct model for required returns. Correlation Matrix K 0.60 1.00 0.90 1.00 0.60 0.80 Market 0.0020480 0.0021600 Market 0.80 0.90 1.00 Ston sharing Hidel lines We