1. Relative to other theories portfolio formation, discuss the advantages of utilising the capital asset pricing model to analyse investment portfolios over earlier theories such Markowitz portfolio selection and mean variance. 2. As a portfolio management consultant you have been approached by a prospective investor who has investible funds of $2, 500, 000. He wants to know the investment awareness available to him which will give a rate of return with minimum risk? Clearly state the risks associated with the chosen investment. 3. Discuss the difference between active investment management and passive investment management.

1. Relative to other theories portfolio formation, discuss the advantages of utilising the capital asset pricing model to analyse investment portfolios over earlier theories such Markowitz portfolio selection and mean variance. 2. As a portfolio management consultant you have been approached by a prospective investor who has investible funds of $2, 500, 000. He wants to know the investment awareness available to him which will give a rate of return with minimum risk? Clearly state the risks associated with the chosen investment. 3. Discuss the difference between active investment management and passive investment management.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

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Concept explainers

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.

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2. As a portfolio management consultant you have been approached by a prospective investor who has investible funds of $2, 500, 000. He wants to know the investment awareness available to him which will give a rate of return with minimum risk? Clearly state the risks associated with the chosen investment.

3. Discuss the difference between active investment management and passive investment management.

Definition Definition Model that illustrates the correlation between the expected return and risk of capital investment in stock. According to this model, the expected rate of return on equity is equal to the risk-free return added to a risk premium, which is based on the stock beta.

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