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: As one adds more assets to a portfolio in order to achieve diversification, what will happen to the…

A: Diversification is referred to as the process in which more assets are added by the investors which…

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: How might the incentive fee of a hedge fund affect the manager’s proclivity to take on high-risk…

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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: Equity price risk is the risk that arises from security price Choose. - the risk of a Choose... v in…

A: The question is fill in the blanks and is related with Portfolio Management.

Q: What happens if someone is not given the Beta for a stock that they are analyzing? Will they still…

A: CAPM described the relationship between systematic risk and expected rate of return. The equation is…

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: What are the risk implications for an investor for a returns series that exhibits fat tails?

A: Fat tails means that there are more than three standard DEVIATION movements more than normal…

Q: Why might the stock price changing make sense within the context of risk and return?

A: Stock price movement is dependent on various factors which would eventually impact the required rate…

Q: How duration and convexity can help investors better manage their fixed-income portfolios. Give…

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Q: Can someone give an example or scenarios about the following: 1. Efficient portfolio2. Market…

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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…

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Q: 1.Why the advantage of Portfolio analysis is it raises the issue of cash-flow availability for use…

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Q: “Value-weighted index could provide a better signal on the market condition to the investors as…

A: Value -weighted  index -Index return equals the weighted average  of the return of each component*…

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: Why is there an arbitrage opportunity and how does the arbitrage portfolio work? Thanks for your…

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Q: What are efficient markets? Imagine if the price of a stock is going up and financial markets are…

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

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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: What is relationship between the market risk of a stock and it's expected return?

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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…

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Q: Suggest what is the best financial instrument to offset market risk exposure and from market…

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

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

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

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Q: ld I manage my portfolio's risk in the current financial environment (Ex: COVID-19, inflation,…

A: Today we are living in the highly uncertain and volatile and inflationary environment where the…

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

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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.