FNCE30001 Study Guide - Midterm Guide: Kurtosis, Sharpe Ratio, Utility

• School: University of Melbourne
• Department: Finance
• Course: FNCE30001
• Professor: Brown

Document Summary

The distribution of us stock market returns since 1950 can fairly be characterised as: (a) Symmetric, with positive excess kurtosis (b) asymmetric, with positive excess kurtosis (c) Symmetric, with negative excess kurtosis (d) asymmetric, with negative excess kurtosis. He has ,000 to invest and has identified a risky portfolio with a standard deviation of 16% and a sharpe ratio of 0. 4. He will combine an investment in this portfolio with borrowing or lending at the risk-free rate. Emile"s optimal choice will require him to: (a) The optimal proportion to invest in the risky portfolio is given by. P is the sharpe ratio of the risky portfolio. A is the coefficient of risk aversion in the utility function. P is the standard deviation of the risky portfolio. The optimal proportion in the risky portfolio is given by y. The proportion in the risk-free asset is therefore 1 1. 25 = 0. 25. Emile therefore borrows 0. 25 ,000 = .