In: Business and Management

Submitted By An7gela
Words 1334
Pages 6
Chapter 6
1. Only a reflect pure market risk
a. market risk
b. firm-specific risk
c. can be firm-specific, or due to market factors
d. firm-specific risk
e. either firm-specific or market risk

1. a and e

2. a and c
The portfolio risk is calculated through the standard deviation of the portfolio. It includes the variance of the real estate, the correlation/covariance between real estate and stocks, the correlation/covariance between real estate and bonds.

3. Only a is valid. 1. Valid. Since it is the minimum variance portfolio of risky securities, its variance must be the lowest than those of all other securities. 2. Not Valid. Risk-free rate is the rate when there is no risk; therefore, the return is the lowest. Since other portfolio must have some risk, it definitely has higher expected returns. 3. Not Valid. Other portfolio, when combined with risk free asset, will provide a larger CAL slope and a higher return. 4. Not Valid. It is possible to reach a minimum variance portfolio without some securities.

4. E(S) = 20%, E(B) = 12%, STD(S) = 30%, STD(B) = 15%


E(rp) = .4516*20+.5484*12=15.61%


9.a. E(rC)=rf+(E(rp)-rf)/SDp*SDc)=.08+.4601SDc=14%
b.E(rC) = (1-y)rf + yE(rp) = rf + y [E(rp)- rf] = 8 + y (15.61 -8) =14% y=.7884 t-bills: 1-y=.2116 stocks:.7884*.4516=.3560 bonds:.7884*.5484=.4324

10. 14 = 20wS + 12(1-wS) = 12 + 8wS, wS = .25
SDp = (.25^2*0.0900 + 0.75^2*.0225 + 2*0.25*0.75*0.0045)^1/2
= 14.13%

12. SDp=Abs(wASDA-wBSDB)
wA=.67 wB=.33 E(r)=.67*10+.33*15=11.67%



15.Probability Rate of Return .7…...

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