Consider an investor who wishes to invest 40% to defensive investments and 60%allocation to growth investments. The investor has worked out the forecasted volatility,expected return and correlation between the two types of investments as below:ReturnVolatility6% per annumInvestmentsDefensive5% per annumGrowth18% per annum11% per annumThe correlation between growth and defensive investments is 0.05Calculate the proportion of risk allocated to Defensive investments in this portfolio.6.78%4.56%None of the other answers5.65%7.39%

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Consider an investor who wishes to invest 40% to defensive investments and 60% allocation to growth investments. The investor has worked out the forecasted volatility, expected return and correlation between the two types of investments as below: Volatility Investments Defensive Growth Return 6% per annum 5% per annum 18% per annum 11% per annum The correlation between growth and defensive investments is 0.05 Calculate the proportion of risk allocated to Defensive investments in this portfolio.

Consider an investor who wishes to invest 40% to defensive investments and 60% allocation to growth investments. The investor has worked out the forecasted volatility, expected return and correlation between the two types of investments as below: Volatility Investments Defensive Growth Return 6% per annum 5% per annum 18% per annum 11% per annum The correlation between growth and defensive investments is 0.05 Calculate the proportion of risk allocated to Defensive investments in this portfolio.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviations for five different well-diversified portfolios of risky assets:Portfolio Expected Return Standard DeviationQ 7.8% 10.5%R 10.0 14.0S 4.6 5.0T 11.7 18.5U 6.2 7.5a. For each portfolio, calculate the risk premium per unit of risk that you expect to receive ([E(R) − RFR]/σ). Assume that the risk-free rate is 3.0 percent.b. Using your computations in Part a, explain which of these five portfolios is most likely tobe the market portfolio. Use your calculations to draw the capital market line (CML).c. If you are only willing to make an investment with σ = 7.0%, is it possible for you toearn a return of 7.0 percent?d. What is the minimum level of risk that would be necessary for an investment to earn7.0 percent? What is the composition of the portfolio along the CML that will generatethat expected return?e. Suppose you are now willing to make an investment…
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