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Question
Alan Barnett is 43 years old and has accumulated $78,000 in his self directed defined contribution pension plan. Each year he contributes $1,500 to the plan, and his employer contributes an equal amount. Alan thinks he will retire at age 60 and figures he will live to age 83. The plan allows for two types of investments. One offers a 4% risk free real rate of return. The other offers an expected return of 10% and has a standard deviation of 34%. Alan now has 40% of his money in the risk free investment and 60% in the risky investment. He plans to continue saving at the same rate and keep the same proportions invested in each of the investments. His salary will grow at the same rate as inflation. How much does Alan currently have in the safe account; how much in the risky account?
A. $31,200; $46,800
B. $39,000; $39,000
C. $15,900; $62,100
D. $45,300; $32,700
E. $64,000; $14,000
Answer
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Related questions
Q:
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B. risk arbitrage.
C. option arbitrage.
D. equilibrium arbitrage.
Q:
An important difference between CAPM and APT is
A. CAPM depends on risk-return dominance; APT depends on a no-arbitrage condition.
B. CAPM assumes many small changes are required to bring the market back to equilibrium; APT assumes a few large changes are required to bring the market back to equilibrium.
C. implications for prices derived from CAPM arguments are stronger than prices derived from APT arguments.
D. Both CAPM depends on risk-return dominance; APT depends on a no-arbitrage condition and CAPM assumes many small changes are required to bring the market back to equilibrium; APT assumes a few large changes are required to bring the market back to equilibrium.
E. All of the options are true.
Q:
There are three stocks: A, B, and C. You can either invest in these stocks or short sell them. There are three possible states of nature for economic growth in the upcoming year (each equally likely to occur); economic growth may be strong, moderate, or weak. The returns for the upcoming year on stocks A, B, and C for each of these states of nature are given below: If you invested in an equally-weighted portfolio of stocks A and C, your portfolio return would be ____________ if economic growth was strong.
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Q:
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C. Both the CAPM and the multifactor APT
D. Neither the CAPM nor the multifactor APT
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Q:
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Q:
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Q:
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A. I and III
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C. II and IV
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Q:
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Q:
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E. the variance of the security's return in that scenario and the overall portfolio variance.
Q:
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II) unique risk
III) systematic risk
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A. I, III, and IV
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Q:
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A. the portfolio standard deviation will be greater than the weighted average of the individual security standard
deviations.
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deviations.
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deviations.
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Q:
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B. Interest rates
C. Personnel changes
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Q:
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C. 0.00
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E. None of the options are correct.
Q:
Which statement about portfolio diversification is correct?
A. Proper diversification can eliminate systematic risk.
B. The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities
have been purchased.
C. Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.
D. Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a
decreasing rate.
E. None of the statements are correct.
Q:
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A. is likely to be higher in an increasing market.
B. results from factors unique to the firm.
C. depends on market volatility.
D. cannot be diversified away.
Q:
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Q:
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A. 0.24; 0.76
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C. 0.57; 0.43
D. 0.43; 0.57
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Q:
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A. 1.5%; 1.9%
B. 2.5%; 1.1%
C. 3.2%; 2.0%
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Q:
The variance of a portfolio of risky securities
A. is a weighted sum of the securities' variances.
B. is the sum of the securities' variances.
C. is the weighted sum of the securities' variances and covariances.
D. is the sum of the securities' covariances.
E. None of the options are correct.
Q:
You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a
T-bill with a rate of return of 0.03.
What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to
form a portfolio with an expected return of 0.08?
A. 85% and 15%
B. 75% and 25%
C. 62.5% and 37.5%
D. 57% and 43%
E. Cannot be determined.
Q:
An investor invests 35% of his wealth in a risky asset with an expected rate of return of 0.18 and a variance of
0.10 and 65% in a T-bill that pays 4%. His portfolio's expected return and standard deviation are __________
and __________, respectively.
A. 0.089; 0.111
B. 0.087; 0.063
C. 0.096; 0.126
D. 0.087; 0.144