Suppose you are an average risk-averse investor who can purchase only one of the following stocks. Which should you purchased? Explain your reasoning. Investment     Expected Return, r      Standard Deviation, (r Stock M                  6.0%                           4.0% Stock N                 18.0                            12.0 Stock O                 12.0                              7.0

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Q: Suppose that stocks are exposed to independent risks only so that stock has the following return…

A: Return from the Portfolio is given by Ri,t =mi+si,t where Ri,t= return on the portfolio           mi…

Q: Which of the following statements is TRUE? O A. If the risk-free rate is 1.5% and the market risk…

A: Capital Asset Pricing Model: According to the Capital Asset Pricing Model (CAPM), the link between…

Q: QUESTIONS: 1) Assuming that the risk-free rate of return is currently 3,2%, the market risk premium…

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Q: Draw the profit diagram (profit not payoff) of a portfolio consisting of a long position in two call…

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Q: what must the beta be for the other stock in your portfolio?

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Q: Suppose that there are many stocks in the security market and that the characteristics of stocks A…

A: StockExpected ReturnStandard deviationA11%6%B17%9%Correlation-1

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A: Information Probability Return 0.3 -10% 0.4 10% 0.3 30%

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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.