b) Consider the following expected returns, volatilities, and correlations: Correlation Correlation with Duke with Energy Microsoft 1.0 -1.0 Stock Duke Energy Microsoft Wal-Mart Expected Standard Return Deviation 14% 6% 44% 24% 23% 14% -1.0 0.0 1.0 0.7 Correlation with Wal- Mart 0.0 0.7 1.0

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: Can an investor eliminate market risk from a common stock portfolio?

A: There are two types of Risk 1. Systematic  Risk:- These are risk pertains to Industry as a whole not…

Q: Explain the Opportunistic Investing strategies?

A: Opportunistic investing strategies are strategies that involve investment in highly risky…

Q: Which of the following factors is most likely to affect the level of systematic risk in a portfolio?…

A: Systematic risk-It is a risk that is impossible to completely avoid as the risk is inherent to the…

Q: Which are the most efficient combination of securities that provides investors with maximum…

A: The efficient frontier is a set of optimal portfolios that provide the greatest expected return for…

Q: What are the benefits and advantages of diversification for a portfolio?

A: Diversification of portfolio means allocating investments to different assets so that there is…

Q: According to the capital asset pricing model, all investors will hold the market portfolio. If this…

A: According to Capital Asset Pricing model ,k = Rf + [Beta * (Rm- Rf)]wherek = Expected return on…

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

A:

Q: Is the risk-free rate the Treasury yield?

A: The risk-free rate refers to the rate of return on an investment that is having zero risk of loss.…

Q: How is risk defined and measured? How might the magnitude of the market risk premium impact…

A: In financial terms, the risk is referred to as the possibility that an outcome's actual gains will…

Q: Discuss the importance of market efficiency and explain why some markets are more efficient than…

A: Why Are Some Markets More Efficient than Others?1. Liquidity: More liquid markets are typically more…

Q: Can an investor eliminate market risk from a portfolio of common stocks?

A: Beta is a systemic risk of this kind. The risk integral to the business or segment as a whole is…

Q: Which statement is not true regarding the market portfolio? Group of answer choices a. It includes…

A: A diversified investment portfolio comprising all marketable assets is represented by the…

Q: What is diversification? How does the risk of a diversified portfolio compare with the risks of the…

A: Diversification is a key phenomenon used by investors in portfolio management. It is explained…

Q: 2. What are the two types of fixed-income portfolio management strategies and why is each used?

A: The portfolio composed of securities resulting in the regular cash flows which will ultimately helps…

Q: a) Discuss why international stock might have high volatility but low betas.

A: Beta is the sensitivity of the price of an asset to movements in the market as a whole and is a…

Q: 23. The certainty equivalent rate of a portfolio is  a. the rate that a risk free investment would…

A: The certainty equivalent rate of a portfolio means the assured rate of the return that an investor…

Q: What are the key differences between the Arbitrage Pricing Theory (APT) and the Capital Asset…

A: Portfolio management entails the planning, supervision, timing, rationalism, and conservatism…

Q: How does the diversification of an investor’s portfolio avoid risk?

A: Portfolio investments mean investments in the group of assets, securities, bonds, etc. Investments…

Q: What is relationship between the returns on an asset and returns in the whole mark

A: A market portfolio is a theoretical concept that means a portfolio that consists of all the stocks…

Q: What role does sentiment play to explain stock price volatility? Explain

A: The role of emotion in determining the price of a company is one of the most significant aspects to…

Q: 4. What are the various types of risk intrinsic to fixed-income portfolios?

A: Fixed income portfolios include investments that provide periodic interest at a fixed rate. Fixed…

Q: Which asset below is generally the most suitable benchmark measure of the risk-free return?…

A: Risk free rate is rate of return which is quite certain an can be attained without any problem and…

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.