Indicate whether the following statements are true or false (circle one). Use 1 or 2 sentences to discuss why it is so. (a) If R is simple 1-month return, then the annualized return is 12 x R, after assuming all R = R. True False Why? (b) Let 1 AIG₂ be continuously compounded 1-month returns for Goldman Sachs Group (GS) and American International Group (AIG). If we construct a portfolio using the share ain[0, 1] for GS, the portfolio cc return is = OC*T +(1-x)*r - True False Why? (c) In 5. (b)., if 5% quantile of the portfolio cc return is given as AIG, r GS, and r. r P.4 GS, r 90.05 = -0.5, then 5% monthly Value-at-Risk for the $10,000 investment in this portfolio is $10,000 × (-0.5) = -$ 5,000. True False

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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.