When discussing a mix of risky assets please briefly explain the following concepts, making sure your answer includes sufficient details about what each point is.
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A: “Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first ...
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Q: r expected return on this investment?
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- Markowitz theory indicates to create and construct a portfolio of assets to maximize returns within a given level of risk, or to devise one with a desired, specified and expected level of return with the least amount of risk. Under this broader concept, answer the followings: Justify, why an optimal portfolio should lie on security market line curveDiscuss how risk can be reduced by diversification in a two-asset portfolio. Your discussion should include the impact of correlation and covariance on a portfolio. Use examples to show the main drivers that bring down the risk of a two-asset portfolio.In order to benefit from diversification, the returns on assets in a portfolio must: Answer a. Not be perfectly positively correlated b. Have the same idiosyncratic risks c. Be perfectly positively correlated d. Be perfectly negatively correlated
- Indicate whether its True or False. Then write the explanation! In the presence of diversification benefits, when we combine two assets together into a portfolio, the systematic risk of the portfolio will be less than the weighted average systematic risk of the individual assets in the portfolio.Markowitz theory indicates to create and construct a portfolio of assets to maximize returns within a given level of risk, or to devise one with a desired, specified and expected level of return with the least amount of risk. Under this broader concept, answer the followings two questions: Question no 1 Justify with detail explanation, why an optimal portfolio should lie on security market line curveWhich of the following statements is correct? a. Since investors prefer more return and less risk, one will never hold a dominated asset in the risk-return sense. In other words, if asset A has a higher expected return and lower standard-deviation than asset B, then investors would only hold asset A in their optimal portfolio. b. The IRR method correctly ranks mutually exclusive projects. c. When an investment project is evaluated today, the spending that occurred in the last year has to be included in the NPV analysis. d. The payback period criterion properly considers the time value of money. e. When there are two mutually exclusive projects, the project with the highest NPV should be chosen.
- Select all that are true with respect to the factors that influence option value: Group of answer choices Call values decrease as the value of the underlying asset increases, and vice versa for puts. Call values decrease as the exercise price of the underlying asset increases, and vice versa for puts. Call values decrease as the time to expiration increases, and vice versa for puts. Call values and put values increase as the time to expiration increases. Call values and put values increase as the variance of the underlying asset increases.(a) According to CAPM, the expected return of a risky asset is larger than the risk free rate. (b) According to CAPM, the expected return of a risky asset increases with its variance. (c) According to the separation property, the optimal risky portfolio for an investor dependson the investor’s personal preference. (d) A less risk-averse investor has a steeper indifference curve for the utility function.Answer whether each of the following statements is correct and explain your argument. \ (a) According to CAPM, the expected return of a risky asset is larger than the risk free rate. (b) According to CAPM, the expected return of a risky asset increases with its variance. (c) According to the separation property, the optimal risky portfolio for an investor dependson the investor’s personal preference. (d) A less risk-averse investor has a steeper indifference curve for the utility function.
- Which of the following statements describing the elements of intrinsic valuation is most accurate? a. A simple calculation of present values of expected cashflows of different investments using the risk free rate would be enough to determine which asset is best. b. The risk-free rate is the lowest rate that an investor can earn from short-term investments.c. When the present value of the cashflows is discounted with the appropriate rate end this present value is positive, then the asset providing these cashflows have a value to the investor. d.Cashflows may include depreciatipon expenses and amortization costs.In a few sentences, answer the following question as completely as you can. According to the CAPM, the expected return on a risky asset depends on three components. Describe each component, and explain the role of each one in determining expected return.In an efficient market when asset expected returns are plotted against asset betas, then all assets would be on the security market line A. Because all assets have the same beta B. Because no assets have the same risk premium C. Because all assets have the same reward to risk ratio D. Because all assets have the same systematic risk E. Because all assets have the same average amount of systematic risk