A risk-averse investor is considering two possible assets as the assets to be held in isolation. The assets' possible returns and related probabilities are as follows: Asset X P __r_ 0.10 -3% 0.10 2 0.25 5 0.25 8 0.30 10 Asset Y Pr 0.05 -3% 0.10 2 0.30 5 0.30 8 0.25 10 According to risk and return, which asset should be preferred?

Q: The expected return for an individual asset is the sum of expected returns in each state of the…

A: Expected rate of return is the most likely and probable and average rate of return that can be…

Q: A measure of how the returns of two risky assets move in relation to each other is the:

A: By calculating covariance we can identify in what direction the returns move for two securities.

Q: What is the expected return on a portfolio? How can the expected return on a portfolio be…

A: Expected Return on Portfolio  =( Weights of Stock 1 * Return of Stock 1) + ( Weights of Stock 2 *…

Q: fter combining a riskfree asset with the efficient frontier of risky portfolios, you no longer need…

A: Step 1 The effective limit of a set of relevant portfolios provides the highest expected return on a…

Q: What are the three factors that the expected return on any risky asset is composed of?

A: Following are the three factors that the expected return on any risky asset is composed of:…

Q: The contribution of an individual asset to the riskiness of a fully diversified portfolio depends…

A: A portfolio is made up of two or more than two stocks. A well-diversified portfolio is that…

Q: Under prospect theory, the shape of the utility function implies that investors are

A: Under prospect theory, the shape of the utility function implies that investors are: (A) Always risk…

Q: What are the factors in determining the expected rate of return of LPs? Group of answer choices a.…

A: Limited partners (LPs) are investors in a limited partnership, such as a venture capital (VC) fund…

Q: Facing the question of whether to buy and hold an asset or whether to buy one asset rather than…

A: The Capital Asset Pricing Model is a model that describes the relationship between the expected…

Q: Briefly define and give examples of each of the following components of total risk. Which type of…

A: Risk refers to the variability of returns. It is the possibility or the likelihood that the actual…

Q: isk that affects at most a small num a. total risk b. portfolio risk c. unsystematic risk D

A: Risk refers to the form of uncertainties linked to a business proposal, investment, or even in the…

Q: Someone who is risk neutral A. does not care about an asset's risk B. places a value on an asset…

A: The term "risk neutral" refers to an individual's mindset when considering investment possibilities.…

Q: Which statement best describes the concept of risk? A) Under a situation of risk, future outcomes…

A: When you invest money than there is uncertainty related and not sure how much you would earn or how…

Q: At a minimum, which of the following would you need to know to estimate the amount of additional…

A: A risk-free commodity is one that has a guaranteed future return and almost no chance of declining…

Q: The systematic risk principle states that the expected return on a risky asset depends only on which…

A: Systematic risk is the risk which is experienced by all the firms in an industry and it is…

Q: Which of the following statements describing the elements of intrinsic valuation is most accurate?…

A: Intrinsic value of any project or any assets is how value being added by asset to value of investors…

Q: Theta measures an option's: Multiple Choice O O O intrinsic value. volatility. rate of time decay.…

A: Theta measures an option's rate of time decay. It also tells us how much the  option value will…

Q: How does the efficient frontier change if we add the risk free asset into the portfolio of risky…

A: The efficient frontier is a set of optimal portfolios that maximizes expected returns for a given…

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.