Portfolio Assignment | Professional Writing
Consider the following four portfolios:
- Portfolio A has $950 invested in the risk free asset and $50 invested in the market.
- Portfolio B has $5,000 invested in the risk free asset and $5,000 invested in the market portfolio.
- Portfolio C has $25,000 invested in the risk free asset and $75,000 invested in the market portfolio.
- Portfolio D has borrowed $500,000 at the risk free rate (e.g., W(risk free) = -50%) and has invested $1,500,000 in the market portfolio.
Assume that you can borrow and lend at a risk free rate of 5% per year and assume that the market portfolio has an expected return of 12% per year and its annual returns have a standard deviation of 22%. Select the most accurate statement below.
A) Of the four portfolios described above, Portfolio A has the highest reward to variability ratio.
B) Of the four portfolios described above, Portfolio B has the highest reward to variability ratio.
C) Of the four portfolios described above, Portfolio C has the highest reward to variability ratio.
D) Of the four portfolios described above, Portfolio D has the highest reward to variability ratio.
E) None of the above statements is correct.
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