1. Consider a Treasury bill with a rate of return of 1% and the following risky securities: Security A: E(r) =0.1; variance = 0.03; Security B: E(r) = 0.015; variance = 0.0225; Security C: E(r) = 0.07; variance = 0.04; Security D: E(r) = 0.25; variance = 0.25.The investor must develop a complete portfolio by combining the risk-free asset with one of the securities mentioned above. The security the investor should choose as part of her complete portfolio to achieve the best CAL would be _________." A B C D
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.
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2. Security with
NOTE: All answers should be express in strictly numerical terms. For example, if the answer is 5%, write 0.05
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