Return on a portfolio of two risky assets which are perfectly negatively correlated is equivalent to a. Risk-free rate b. Return on market portfolio c. Zero return d. -1%
Q: When diversification completely reduced the non-systematic risk of a portfolio a. The return of…
A: Non-systematic risk is the diversifiable risk. Which means that by adding different stocks in the…
Q: Which of the following is a false statement of the market price of risk found in the Capital Market…
A: Portfolios that blend risk and return optimally are represented by the capital market line (CML).…
Q: Problem 2: You have access to three risky assets (Stocks A, B, and C) and ariskless asset:Expected…
A: Portfolio refers to the combination of different assets or securities that will yield the maximum…
Q: hich one of the following is not a property of a pure arbitrage portfolio? a. Zero investment. b.…
A: Arbitrage is buying and selling of securities in two different markets to take advantage of…
Q: Risk and Return Suppose you hold an asset that delivers a return R;. You wish to hedge against a…
A: Each asset has different return as per their risk level. CAPM measures the asset return or portfolio…
Q: Two important assumptions of portfolio theory are: a) returns from investments are normally…
A: The portfolio theory seems to be an investment framework that enables investors to select from a…
Q: Which of the following statements is most correct? A. Combining positively correlated assets…
A: The combination of positively related and negative related assets has been seen provided in the…
Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…
A: Computation of the expected return using SML equation: Market rate is RM Let X be the required…
Q: Given a real rate of interest of 2%, an expected inflation premium of 3%, and risk premiums for…
A: The capital asset pricing model (CAPM) refers to the model which tells us how the financial markets…
Q: Portfolio standard deviation is negatively associated with the covariance among the assets in the…
A: The portfolio standard deviation is the financial measure which computes the investment risk and…
Q: b. Suppose that you have the following information of three risky assets. Security Return (%)…
A: Risk free asset = 6% A= 6
Q: According to CAPM which of the following statements is (are) correct? #1 Financial assets with the…
A: Capital Asset pricing model is a model which is used to compute the required return of stocks taking…
Q: 7. The utility score a typical investor would assign to a particular portfolio, other things equal,…
A: The utility score of an investor depends on return and total risk. The Capital Market Line shows the…
Q: 1. The diversifiable risk of a portfolio: a. Is correlated with systematic risk. b. Can be made…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: Evaluate the following statement: If the financial market is frictionless and complete, the asset…
A: A monetary market is where individuals might trade minimal expense monetary protections and…
Q: In measuring the performance of a portfolio, the time-weighted rate of return is superior to the…
A: Note we have two different type of measurement return of portfolio manager Time weighted rate of…
Q: Identify the FALSE statement a. Where two securities are perfectly positively correlated, there is…
A: In order to reduce the risk investors generally invest in more than one security, so that if there…
Q: It is a risk adjusted performance measure that represents the average return on a portfolio. a.…
A: Correct answer is (a) sharp ratio
Q: An efficient capital market is best defined as a market in which security prices reflect which one…
A: Efficient Capital Market: It is the market where all available information is reflected in asset…
Q: Value-at-risk (VaR) can be defined as: Group of answer choices A. The highest value of a portfolio…
A: Portfolio refers to basket of different financial assets in which investment is made by single…
Q: The expected return on the market is the risk-free rate plus the A. diversified returns B.…
A: According to CAPM model: expected return=rf+beta×rm-rfwhere,rf=risk free raterm=market return
Q: Consider the following financial market with two risky assets x and y as well as a risk-free asset…
A: Any location or system that gives buyers and sellers the ability to exchange financial assets, such…
Q: O If the correlation coefficient is less than one, then no portfolio obtained by combining assets 1…
A: Correlation coefficient indicates that relationships between two whether moving in same direction or…
Q: 6. Consider the following performance data for two portfolio managers (A and B) and a common…
A: a) The overall return is calculated as below: Calculation: Answer: Overall bechmark return is…
Q: arket's Risk premium measures Select one: a. The market return plus the risk free rate. b. The…
A: The market risk premium represents the market participants demand extra return by increasing the…
Q: In order to benefit from diversification, the returns on assets in a portfolio must: Answer a. Not…
A: a. Not be perfectly positively correlated Explanation: Diversification is the process of…
Q: Use the following three statements to answer this question: 1. Risk means the probability that the…
A: 1 Statement:- Risk is the chance or the outcome of the difference between the initial investment…
Q: A zero-investment portfolio with a positive alpha could arise if:a. The expected return of the…
A: According to the Capital Asset pricing model, required rate of return is the sum of the risk free…
Q: An efficient portfolio is one that: Select one: a. maximises return for a given level of…
A: Efficient Portfolio is the Portfolio or group of stocks invested which maximises the expected rate…
Q: Diversification refers to the _________. a. reduction of the stand-alone risk of an individual…
A: diversification recuses the unsystemic risk of an individual stock by including other stocks in the…
Q: The market risk premium (E[Rm]-Rf) is 6%. The risk-free rate (Rf ) is 2%. Asset X has beta equal to…
A: Here, Market Risk Premium is 6% Risk Free Rate is 2% Beta of Asset X is 0.8 Expected Return of Asset…
Q: A portfolio is efficient if no other asset or portfolios offer higher expected return with the same…
A: Solution: Efficient Portfolio is that portfolio out of the feasible portfolios, which has higher…
Q: Explain the following Financial Terminology and then determined the relationship between its.…
A: Efficient Portfolio – It is the Portfolio that lines on the CML (capital market line) and maximizes…
Q: Beta is defined as the: a. Amount of systematic risk in a risky asset relative to that in an…
A: Beta is an important concept in finance and important models such as capital asset pricing model…
Q: Expected returns and standard deviations of three risky assets are as follows: Expected Return…
A: Portfolio is the investment basket where several assets like bonds, securities and real assets like…
Q: 10. Consider two uncorrelated assets with expected returns and risk given in the table below. Blanc…
A: Expected Return of B is 7.5% Expected Return of R is 12.5% Standard Deviation of B is 5% Standard…
Q: The measure of risk for a security held in a diversified portfolio is:a. Specific risk.b. Standard…
A: the standard deviation of returns is the measure of risk which measures the dispersion of variables.…
Q: b. Suppose that you have the following information of three risky assets. Security Return (%)…
A: Here, Risk Free Asset is 6% Other Details are as follows: A= 6
Q: Suppose that there are two assets: A and B. Asset A has expected return of 20% and standard…
A: A well-maintained portfolio is required for an investor's success. The asset allocation should be…
Q: Which one of the following is a property of a pure arbitrage portfolio? a. Negative investment. b.…
A: Arbitrage is the practice of purchasing and selling the same assets in multiple markets. This is…
Q: Select the incorrect statement about the optimal portfolio weights in the SIM from the following:…
A: Short selling is an kind of investment or trading strategy that forecast the decline in a stock…
Q: The concept of Portfolio Effect indicates that the more assets added to the portfolio, the less risk…
A: Portfolio means collection of various financial investments. Such investments can be in mutual…
Q: Which of the following statements are true? Explain.a. A lower allocation to the risky portfolio…
A: Sharpe ratio=Expected return of portfolio -Risk free returnStandard Deviation of portfolio Option…
Q: ch one of the following is a property of a pure arbitrage portfolio? a)Zero return. b)Zero…
A: Step 1 Pure arbitrage refers to the investment method described above, in which the investor buys…
Q: The security market line (SML) is a. the line that represents the expected return-beta relationship.…
A: Security market line(SML) represent capital assets pricing model(CAPM). It shows the expected rate…
Step by step
Solved in 2 steps
- An investor has a portfolio of two assets A and B. The details are shown in the below table. Portfolio Details Asset Expectedreturn Standarddeviation Covariance (A, B) Expected Portfolio Return A 0.06 0.5 0.12 0.1 B 0.08 0.8 Which one of the following statements is NOT correct? a. The portfolio weight in asset A is -100%. b. The correlation of asset A and B’s returns is 0.3. c. The investor can benefit from a fall in the price of asset A. d. The variance of the portfolio is 2.33. e. The order of short selling is borrowing, buying, selling, and returning.Consider the following two assets: Asset Expected return Standard deviation of returns 1 18% 30% 2 8% 10% The returns on the two assets are perfectly negatively correlated (i.e. coefficient of -1). Calculate the proportions of assets 1 and 2 that generate a portfolio with a standard deviation of zero. What is the expected return of that portfolio?Expected returns and standard deviations of three risky assets are as follows: Expected Return Standard Deviations Correlations A B C A 11% 30% 1.0 0.3 0.15 B 14.5% 45% 0.3 1.0 0.45 C 9% 30% 0.15 0.45 1.0 3. Assume a portfolio of asset B and C. Determine the weight in asset B, such that the total portfolio risk is minimized.
- 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?The expected return of a portfolio that is totally invested in the risk free asset is caclculated as: E(R) = WA * E(RA) Wf * E(RB) = 0 * 0.16 1.0 * 0.08 = 0 0.08 = 0.08 or 8% Therefore the expected return of a portfolio with risk free asset is 8% There is no standard deviation for the risk free asset. Please full ExplainThe CAPM states that the expected (required) return on an asset is : E(Ri)=Rf+βi[E(RM)−Rf] where the term in square brackets is the risk-premium earned by the market portfolio. Therefore, the beta of the market portfolio (βM) must be equal to __________ . A) zero B) 0.5 C) 1.0 D) an unknown estimate
- The following expected return and the standard deviation of current returns are known: Security (i) Expected Return Standard Deviation βi A 0.20 0.12 1.1 B 0.12 0.10 0.8 T-Bills 0.05 0 0 Market Portfolio 0.20 0.15 1 Required: Determine which of A or B is over-valued or undervalued.According to CAPM, the expected rate of return of a portfolio with a beta of 1.0 and an alpha of 0 is:a. Between rM and rf .b. The risk-free rate, rf .c. β(rM − rf).d. The expected return on the market, rM.Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratioof betaof A(A) tobeta of B(B). Thank you for your help.
- 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.It is a risk adjusted performance measure that represents the average return on a portfolio. a. sharpe ratio b. Treynor indexA portfolio that is positively correlated with the market portfolio but not particularly sensitive to market risk factors would have a beta that is A. Equal to zero. B. Equal to one. C. Less than zero. D. Between 0 and 1. E. Greater than 1.