1)As an investor assumes more risk and moves upward on the efficient frontier, the slope of the frontier curve most likely: a-increases and expected return per risk increases b-increases and expected return per risk decreases c-decreases and expected return per risk increases d-decreases and expected return per risk decreases 2)Sample mean and variance for norrmal distribution are 42 an 9 respectively. The 99% CI for this is closest to: a:15-69 b:18.8-65.2 c:34.3-49.7 d:39-45 Give it a whirl
D. C.
B,C
D C
Wait, no. yea D, C
D. If it moves up on the efficient frontier, it decreases risk, the slope decreases. Since risk decreases, required return also decreases (less risk, less required return). C. For this problem don’t forget to square the variation 9, to obtain the standard deviation, 3. 42+/- 2.58*3= solution C
C c
Good to know I am not the only one that thinks this… Answers are listed as: C-marginal return is decreasing when you move upward on the frontier B-42 +/- (2.58*9) For the first one, isnt that what D means? For the second one why are they using variance instead of std dev? WTF?
I think the first is C b/c returns will increase at a decreasing rate. Expected return increases b/c your risk is going up, you need more return. Not sure what is going on with the second one.
I think if it would state that the slope decreases but expected return increases that woulud be correct, but since it states the marginal return decreases that means that the return you get per unit of risk should decrease as you move up the curve, that is why the curve flattens out, because as some point you do not get more return for just takiing on more risk… whatever, maybe these are truly errors and I can give myself 1.6% boost.
tvPM Wrote: ------------------------------------------------------- > Good to know I am not the only one that thinks > this… > Answers are listed as: > C-marginal return is decreasing when you move > upward on the frontier > B-42 +/- (2.58*9) > > For the first one, isnt that what D means? > For the second one why are they using variance > instead of std dev? > > WTF? are the answers from the mock feedback they gave? because if they are then for the second one - i think they are using standard deviation…they raised 9 to 0.5
No, C is correct. Expected Return does increase as you go up the EFF, we all just assumed that it was the marginal return.
expected return increases but not per unit of risk as the problem states
Trying to figure out where you were getting “marginal” from…
D and C
tvPM Wrote: ------------------------------------------------------- > 1)As an investor assumes more risk and moves > upward on the efficient frontier, the slope of the > frontier curve most likely: > a-increases and expected return per risk > increases > b-increases and expected return per risk > decreases > c-decreases and expected return per risk > increases > d-decreases and expected return per risk > decreases > > 2)Sample mean and variance for norrmal > distribution are 42 an 9 respectively. The 99% CI > for this is closest to: > a:15-69 > b:18.8-65.2 > c:34.3-49.7 > d:39-45 > > Give it a whirl 1) Look at the graph of the efficient frontier. One of the assumptions under markowitz is the diminishing marginal utility of wealth. It get flatter as you increase the risk. By definition, the slope is the change in return divided by the change in risk. If that slope is flatter, there’s lesser return per unit of risk. 2) Use 2.58 for 99% CI, multiply by Sqrt(9) = 3, which is the std deviation. Multiply by 2.58, you get 7.74. Add and subtract this value from the mean.
Return still increases. Risk goes up by 1, Return goes up by .0000000000000000000001. Return still goes up per unit of risk, no matter how small that increase is.
ereturn=10 erisk=10 return per unit of risk=1 ereturn=15 erisk=30 return per unit of risk=.5
kant-now i got ya. since the curve never turns back downward you still increase your return per unit of risk, right? even though it marginally decreases, it still increases. That second one is just wrong though.
But if you assume more risk, you better be getting a better return, even if it is increasing at a decreasing rate. At least that is what I would want.