The portfolio manager of XYZ bank recently used reports from its securities analysts to develop the...

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Finance

The portfolio manager of XYZ bank recently usedreports from its securities analysts to develop the followingefficient portfolios;
        ExpectedRate of Return    Variance
1                      8%                             25
2                     10%                            36
3                     15%                            64
4                     20%                           169
5                     25%                           324
a. If the risk free rate of interest is 3% whichportfolio is best?
b. Assume that the portfolio manager would like to earn an expectedrate of return of 10% with a standard deviation of 4%, is thispossible?
c. If a standard deviation of 12% was acceptable to the portfoliomanager, what would be the expected return and how would it best beachieved?
d. What is the expected rate of return on a combined portfolio madeup of all the above 5 portfolios with an equal weighting given toeach portfolio? Would the standard deviation of this combinedportfolio be higher or lower than that of portfolio 3 or is it notpossible to say?

Answer & Explanation Solved by verified expert

4.4 Ratings (1093 Votes)

a In order to determine the best portfolio of the lot coefficient of variation needs to be computed Coefficient of variation Standard deviation Expected return Standard See Answer

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The portfolio manager of XYZ bank recently usedreports from its securities analysts to develop the followingefficient portfolios; ExpectedRate of Return Variance1 8% 252 10% 363 15% 644 20% 1695 25% 324a. If the risk free rate of interest is 3% whichportfolio is best?b. Assume that the portfolio manager would like to earn an expectedrate of return of 10% with a standard deviation of 4%, is thispossible?c. If a standard deviation of 12% was acceptable to the portfoliomanager, what would be the expected return and how would it best beachieved?d. What is the expected rate of return on a combined portfolio madeup of all the above 5 portfolios with an equal weighting given toeach portfolio? Would the standard deviation of this combinedportfolio be higher or lower than that of portfolio 3 or is it notpossible to say?