1. Brian and Sara have the same level of risk aversion. Both investors could be

Question

1. Brian and Sara have the same level of risk aversion. Both investors could be their optimal portfolio? A. Brian puts 60% of his complete portfolio wealth into the risky foem their complete a risk-free asset and a risky partolio. Which one of the follow ing portfolios portfolio and Sara puts 40% of her complete portfolio wealth into the risky portfolio. B. Brian puts 50% of his complete portfolio wealth into the risky portfolio her complete portfolio wealth into the risky portfolio. Brian puts 40% ofhis complete portfolio wealth into the risky portfolio and Sara puts 30% of her complete portfolio wealth into the risky portfolio. D. Brian puts 0% of his complete portfolio wealth into the risky portfolio and Sara puts 10% of her complete portfolio wealth into the risky portfolio. 2. Which of the following statements is true? A. Two assets with the same expected return should have the same Sharpe ratio. B. The capital allocation line is a parabola. C. All portfolios lying on the capital allocation line have the same reward-to-volatility ratio D. The reward-to-volatility ratio is the portfolio's risk premium 3. You invest $10,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of1 5% and a standard deviation of 20% and a Treasury bill wíth a rate ofreturn of 5%. How much money should be invested in the risky asset to form a portfolio with a return standard deviation of 25%? A. $8,000 B. $15,000 C. $7,000 D. $12,500

Explanation / Answer

Answer for question no3:

Risky asset:

Expected rate of return=15%.

Standard deviation=20%

treasury rate of return=5%.

Also treasury bill standard deviation is 0%.

So, if the portfolio with a return standard deviation of 25% is to be formed then let the amount be x invested in risky asset and 1-x be the balance amount invested in risk free asset

Therefore target return standard deviation =25%

20%*X+(1-x)*0%=25%

solving for x=125%

Therefore the amoun to be invested in a portfolio to have a 25% return standard deviation is 10000*125%

=12500.

Answer is option D.

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