This business/management problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.
ScanSolve AI Answer
First, let's identify the given values: Total market value of the complete portfolio = \600,000 Value of ready asset money market fund (risk-free) = \180,000 Value of risky securities = \420,000 Value of equities (E) = \226,800 We need to calculate the value of long-term bonds (B): Value of bonds (B) = Value of risky securities - Value of equities B = \420,000 - \226,800 = \193,200 Now we can determine each part. A) The equities and bond holdings composition of the risky portfolio. The risky portfolio has a total value of \420,000. Step 1: Calculate the weight of equities in the risky portfolio. w_E = Value of EquitiesTotal Value of Risky Portfolio = (\226,800)/(\420,000) = 0.54 Step 2: Calculate the weight of bonds in the risky portfolio. w_B = Value of BondsTotal Value of Risky Portfolio = (\193,200)/(\420,000) = 0.46 The composition of the risky portfolio is 54% equities and 46% bonds. B) The weight of the equity investment to the global portfolio. The global portfolio has a total market value of \600,000. Step 1: Calculate the weight of equity investment in the global portfolio. w_Equity, Global = Value of EquitiesTotal Market Value = (\226,800)/(\600,000) = 0.378 The weight of the equity investment to the global portfolio is 0.378 or 37.8%. C) The weight of the risky portfolio, P, in the complete portfolio, including risk-free and risky investments. The complete portfolio has a total market value of \600,000. The risky portfolio has a value of \420,000. Step 1: Calculate the weight of the risky portfolio in the complete portfolio. w_P = Value of Risky PortfolioTotal Market Value = (\420,000)/(\600,000) = 0.70 The weight of the risky portfolio in the complete portfolio is 0.70 or 70%. D) The weight of each asset in the complete portfolio. The complete portfolio has a total market value of \600,000. The assets are risk-free, equities, and bonds. Step 1: Calculate the weight of the risk-free asset in the complete portfolio. w_Risk-Free = Value of Risk-Free AssetTotal Market Value = (\180,000)/(\600,000) = 0.30 Step 2: Calculate the weight of equities in the complete portfolio. w_Equities = Value of EquitiesTotal Market Value = (\226,800)/(\600,000) = 0.378 Step 3: Calculate the weight of bonds in the complete portfolio. w_Bonds = Value of BondsTotal Market Value = (\193,200)/(\600,000) = 0.322 The weights of each asset in the complete portfolio are: Risk-free asset: 0.30 or 30% Equities: 0.378 or 37.8% Bonds: 0.322 or 32.2% Summary of results: A. The equities and bond holdings composition of the risky portfolio: Equities: 0.54 Bonds: 0.46 B. The weight of the equity investment to the global portfolio: 0.378 C. The weight of the risky portfolio, P, in the complete portfolio: 0.70 D. The weight of each asset in the complete portfolio: Risk-free asset: 0.30 Equities: 0.378 Bonds: 0.322 Send me the next one 📸