In 2015, the mean return of all common stocks on the Philippine Stock Exchange was 3.5%. The standard deviation of the returns was about 26%.A student of finance forms all possible portfolios that invested equal amounts in 5 of these stocks and records the return for each portfolio. This return is the average of the returns of the 5 stocks chosen. What are the mean and standard deviation of the portfolio returns
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.
In 2015, the mean return of all common stocks on the Philippine Stock Exchange was 3.5%. The standard deviation of the returns was about 26%.A student of finance forms all possible portfolios that invested equal amounts in 5 of these stocks and records the return for each portfolio. This return is the average of the returns of the 5 stocks chosen. What are the mean and standard deviation of the portfolio returns?
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