For the above shares if the expected inter correlations are given as follows: Investment in RM millions Weight Correlation Petronas 23 ? 0.15(P,M) Maxis 47 ? 0.25(M,B) Berjaya 40 ? 0.35(B,P) d) Compute Weights e) Compute the expected portfolio return and f) Expected portfolio risk g) Portfolio Sharpe ratio
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
For the above shares if the expected inter correlations are given as follows:
|
Investment in RM millions |
Weight |
Correlation |
Petronas |
23 |
? |
0.15(P,M) |
Maxis |
47 |
? |
0.25(M,B) |
Berjaya |
40 |
? |
0.35(B,P) |
- d) Compute Weights
- e) Compute the expected portfolio return and
- f) Expected portfolio risk
- g) Portfolio Sharpe ratio
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