70.2K

Verified Solution

Link Copied!

Compare the diversification benefit between the five-industry optimal portfolio in part 3 and the ten-industry optimal portfolio in part 4. How does the existence of the risk-free rate affect your conclusion regarding diversification benefits? Are diversification benefits increased or reduced if the investors can borrow or lend at the risk-free rate?

Optimal risky portfolio (Part 3) Angela MATL 39.90% HC 39.14% CONS 37.58% TELE 20.34% RE Sum(weights) -36.96% 100.00% Weights E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility 1.18% max 0.12% x'Vx 3.51% 0.87% Risk aversion 5 Boris Weights 39.89% 38.97% 37.72% 20.39% -36.97% 100.00% 1.18% max E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility Q5 Optimal portfolio with a risk-free asset Angela Weights 0.12% 3.51% 1.05% MATL 26.03% 2 Risk aversion HC CONS 27.35% 39.87% TELE 11.63% RE Sum(weights) -4.88% 100.00% E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility Sharpe ratio 0.90% 0.10% x'Vx 3.19% 0.64% Risk aversion 0.124508297 max 5 Boris Weights 39.91% 39.08% 37.65% 20.32% -36.97% 100.00% E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility Sharpe ratio 1.18% 0.12% 3.51% 1.05% Risk aversion 0.192564388 max 2 MATL ENGY IT Optimal risky portfolio (Part 4) Angela Weights HC 7.83% CONS 14.52% TELE 10.90% RE -125.12% COND 49.83% INDU 82.62% UTIL 34.97% FIN Sum(weights 21.86% 100.00% 17.70% -5.35% -9.77% E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility 1.99% max 0.17% 4.08% 1.57% Risk aversion 5 Boris Weights 17.59% 7.62% 14.84% 10.86% -125.16% 49.36% -5.49% 83.43% -9.72% 0.7296 34.79% 21.88% 100.00% E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility Q5 Optimal with risk-free asset Angela Weights 1.99% max 0.17% 4.08% 1.82% MATL 17.63% Risk aversion HC CONS 7.90% 14.29% 2 TELE 10.89% INDU RE -125.12% COND 48.94% ENGY -5.27% IT -9.28% UTIL 35.22% FIN Sum(weights 22.19% 100.00% 82.62% E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility Sharpe ratio 1.99% 0.17% 4.08% 1.57% 0.364079528 max Risk aversion 5 Boris Weights 17.80% 8.13% 14.07% 11.00% -125.13% 49.88% -5.34% 81.98% -9.59% 35.35% 21.83% 100.00% E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility Sharpe ratio 1.99% 0.17% 4.08% 1.82% 0.364068105 max Risk aversion 2. Optimal risky portfolio (Part 3) Angela MATL 39.90% HC 39.14% CONS 37.58% TELE 20.34% RE Sum(weights) -36.96% 100.00% Weights E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility 1.18% max 0.12% x'Vx 3.51% 0.87% Risk aversion 5 Boris Weights 39.89% 38.97% 37.72% 20.39% -36.97% 100.00% 1.18% max E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility Q5 Optimal portfolio with a risk-free asset Angela Weights 0.12% 3.51% 1.05% MATL 26.03% 2 Risk aversion HC CONS 27.35% 39.87% TELE 11.63% RE Sum(weights) -4.88% 100.00% E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility Sharpe ratio 0.90% 0.10% x'Vx 3.19% 0.64% Risk aversion 0.124508297 max 5 Boris Weights 39.91% 39.08% 37.65% 20.32% -36.97% 100.00% E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility Sharpe ratio 1.18% 0.12% 3.51% 1.05% Risk aversion 0.192564388 max 2 MATL ENGY IT Optimal risky portfolio (Part 4) Angela Weights HC 7.83% CONS 14.52% TELE 10.90% RE -125.12% COND 49.83% INDU 82.62% UTIL 34.97% FIN Sum(weights 21.86% 100.00% 17.70% -5.35% -9.77% E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility 1.99% max 0.17% 4.08% 1.57% Risk aversion 5 Boris Weights 17.59% 7.62% 14.84% 10.86% -125.16% 49.36% -5.49% 83.43% -9.72% 0.7296 34.79% 21.88% 100.00% E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility Q5 Optimal with risk-free asset Angela Weights 1.99% max 0.17% 4.08% 1.82% MATL 17.63% Risk aversion HC CONS 7.90% 14.29% 2 TELE 10.89% INDU RE -125.12% COND 48.94% ENGY -5.27% IT -9.28% UTIL 35.22% FIN Sum(weights 22.19% 100.00% 82.62% E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility Sharpe ratio 1.99% 0.17% 4.08% 1.57% 0.364079528 max Risk aversion 5 Boris Weights 17.80% 8.13% 14.07% 11.00% -125.13% 49.88% -5.34% 81.98% -9.59% 35.35% 21.83% 100.00% E(Rp) Var(Rp) Std Dev(Rp) Portfolio Utility Sharpe ratio 1.99% 0.17% 4.08% 1.82% 0.364068105 max Risk aversion 2

Answer & Explanation Solved by verified expert

See Answer