Illustration 12: The returns of Security of Wipro and Security of Infosys for the past six years are given below: Year 2003 2004 2005 2006 2007 Security of Wipro Return (%) 9 5 3 12 16 Calculate the risk and return of portfolio consisting. Security of Infosys Return (%) 10 -6 12 9 rity B. 15
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- Which of the following statements about the minimum-variance portfolio of all risky securities is valid? (Assume short sales are allowed.) Explain.a. Its variance must be lower than those of all other securities or portfolios.b. Its expected return can be lower than the risk-free rate.c. It may be the optimal risky portfolio.d. It must include all individual securities.Which of the following statements is true regarding the optimal risky portfolio: It is designated by the point of tangency with iso-utility curve and the capital allocation line. It is designated by the point of highest Sharpe ratio in the opportunity set. It is designed by the point of tangency with the opportunity set and the securities market line. This portfolio gives the highest standard deviation risk per unit of risk premium in the opportunity set.Which of the following is TRUE? To construct a capital market line, we use expected return as y-axis and beta as x-axis On the capital market line debt securities are located to the right of the market portfolio To construct a security market line, we use expected return as y-axis and beta as x-axis Market portfolio lays at an intersection of the average indifference curve of a risk-averse investor and the efficient portfolio
- The standard deviation of a portfolio Group of answer choices -is not a weighted average of the standard deviations of the individual securities held in that portfolio. -cannot be less than the weighted average of the standard deviations of the individual securities held in that portfolio. -measures the amount of diversifiable risk inherent in the portfolio. -is a measure of that portfolio's systematic risk. -serves as the basis for computing the appropriate risk premium for that portfolio..Select all that are true with respect to the historical risk-return tradeoff for portfolios, and for individual stocks. Group of answer choices For portfolios, the relation between risk and return is positive and quite strong For individual stocks, the relation between risk and return is positive and stronger than for portfolios The relation between risk and return is stronger for portfolios than it is for individual stocks You get a better risk-return tradeoff if you put assets together in a portfolioAssume that two securities, A and B, constitute the market portfolio, their proportions and variances are 0.39, 160, and 0.61, 340, respectively. The covariance of the two securities is 190. Estimate the systematic risk (beta) of the two securities. Note that the covariance of security-i with the market portfolio is simply the weighted average of the covariances of security-i with all the securities included in the market portfolio – the lesson you learned in the context of the bordered covariance matrix. Answer step by step.Do all part.Answer must be correct.
- Portfolio manager wants to optimize the riskiness of the two assets portfolio with the given statistics below:- Assets Return Volatility Weight A 17.00% 15.00% 40.00% B 21.00% 25.00% 60.00% Correlation -0.70 -0.35 0.25 0.50 0.70 Requirements Calculate the two assets portfolio standard deviation at different correlation levels which are mentioned above and suggest at which correlation is best suits to your portfolio.Which of the following statements regarding non-systematic risk, systematic risk and total risk is/are true? Select one or more:a. As the number of assets within a portfolio increases, the total risk of a portfolio will go to zero.b. A riskfree asset must have zero non-systematic risk.c. A well diversified portfolio must have zero systematic riskd. Under the Capital Asset Pricing Model (CAPM).an asset with zero systematic risk must have expected return equal to the riskfree rate.Assume you own a portfolio of diverse securities each of which is correctly priced. Given this, the reward-to-risk ratio: of each security must equal the slope of the security market line. for the portfolio must equal 1.0. for the portfolio must be less than the market risk premium.
- Could a more optimal portfolio, that is, one containing some other combination of stocks that would have either increased returns relative to an increase in risk or maintained returns while decreasing risk, been attained by varying the weight (proportion) of the two securities in the portfolio?A two-asset portfolio has the following characteristics. The correlation coefficient between the returns of the two assets is +0.1. Asset Expected Return Expected Standard Deviation Weight A 12% 3% 0.8 B 20% 7% 0.2 Calculate the expected return and the risk (i.e. standard deviation) of this two-asset portfolio. Comment on the risk of this portfolio relative to the two individual assets. Suppose the correlation coefficient between A and B was -1.0. How can an investor obtain a zero risk portfolio consisting of A and B?Consider a portfolio consisting of the below securities with the below characteristics: Security Amount Invested($) Beta Expected Return A 1,5 MIL 1.0 12.0%B 1.0 MIL 1.5 13.5%C 2.0 MIL 0.8 9.0% Required:a) Calculate the portfolio’s Beta. b) Calculate the portfolio’s expected return. c) Discuss the Capital Asset Pricing Model (CAPM) explaining what it is used forand which are its limitations.