After selling 12.75 million shares in Alibabaâs IPO founder Jack Ma received $867m which he wishes to invest wisely. He has contacted three young and very eager investment managers to research the market opportunities and propose an optimal investment portfolio. The best candidate will have the chance to become Maâs wealth manager. Ma will not hire candidates that propose either inefficient or infeasible portfolios. Assume that all securities are priced according to the CAPM and that the risk free rate is 2%. The expected excess return on the market portfolio is 8% and the standard deviation is 20%. The three candidates proposed portfolios with the following characteristics: Expected Return Standard Deviation Candidate: Bo Expected Return: 8% Standard Deviation: 10% Candidate: Michael Expected Return: 12% Standard Deviation: 25% Candidate: Aditi Expected Return: 13% Standard Deviation: 30% 1. Who do you think will be hired by Ma and why? 2. How can the expected return of the wining portfolio be achieved? Specify the amount invested in each asset/portfolio of assets? 3. What is the beta of the winning portfolio? 4. If Ma holds his position for one year what is the total amount of money he expects to earn on his investment? Show all of your calculations and explain your approach.
After selling 12.75 million shares in Alibabaâs IPO founder Jack Ma received $867m which he wishes to invest wisely. He has contacted three young and very eager investment managers to research the market opportunities and propose an optimal investment portfolio. The best candidate will have the chance to become Maâs wealth manager. Ma will not hire candidates that propose either inefficient or infeasible portfolios. Assume that all securities are priced according to the CAPM and that the risk free rate is 2%. The expected excess return on the market portfolio is 8% and the standard deviation is 20%. The three candidates proposed portfolios with the following characteristics: Expected Return Standard Deviation Candidate: Bo Expected Return: 8% Standard Deviation: 10% Candidate: Michael Expected Return: 12% Standard Deviation: 25% Candidate: Aditi Expected Return: 13% Standard Deviation: 30% 1. Who do you think will be hired by Ma and why? 2. How can the expected return of the wining portfolio be achieved? Specify the amount invested in each asset/portfolio of assets? 3. What is the beta of the winning portfolio? 4. If Ma holds his position for one year what is the total amount of money he expects to earn on his investment? Show all of your calculations and explain your approach.
