To obtain the maximum reduction in risk, an investor should combine assets that * A.are negatively correlated. B.have a correlation coefficient of negative one. C.are uncorrelated. Option 5 D.have a correlation coefficient of positive one.

Q: (i) Given that an investor is targeting a total expected return of μ = 0.125 on a portfolio, what is…

A: Standard deviation is a statistical tool used to quantify the degree of variability or dispersion of…

Q: Assume an investor with a utility of the form U= E -0.5As2 . For the risk aversion values of A=1 The…

A: We first need to find the expected return E and standard deviation s for each of the two…

Q: A portfolio consisting of two assets has a correlation coefficient of 0.7. Another two-asset…

A: A portfolio is a collection of financial assets such as stocks, bonds, and cash equivalents, held by…

Q: A measure of how the returns of two risky assets move in relation to each other is the:

A: By calculating covariance we can identify in what direction the returns move for two securities.

Q: The expected value, standard deviation of returns, and coefficient below.) Asset A Possible Outcomes…

A: Expected return-The expected return is calculated by multiplying the probability of each possible…

Q: Problem 3: Investments X and Y both offer the same expected rate of return. The standard deviation…

A: When making investment decisions, it's crucial to consider various factors such as expected returns,…

Q: As the level of risk increases, the corresponding cost of capital (i.e. the return) must…

A: As there is an increase in the risk level, investors would be demanding a higher return on an…

Q: Would this asset be considered more or less risky than the​ market?   The asset is  a. Equally as…

A: An assets risk is represented by stock Beta which indicates that how much movement of stock with…

Q: 1. The diversifiable risk of a portfolio: a. Is correlated with systematic risk. b. Can be made…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Which of the following is a TRUE statement? ○ The separation theorem states that the investment…

A: The statement which is true is (d) The new(or super) efficient frontier represents the portfolios…

Q: Show by using equations or a diagram, that an expected utility maximizer requires a higher return…

A: The objective of the question is to demonstrate that an investor who maximizes expected utility, a…

Q: Consider the following statement: In a capital rationing problem withdivisible investments, if all…

A: Capital rationing is a technique used in capital budgeting to maximize profitability by restricting…

Q: What are the factors in determining the expected rate of return of LPs? Group of answer choices a.…

A: Limited partners (LPs) are investors in a limited partnership, such as a venture capital (VC) fund…

Q: According to the Capital Asset Pricing Model, higher investment risk, however it is measured,…

A: The CAPM model is being used for finding the required rates of returns of the security for given…

Q: Facing the question of whether to buy and hold an asset or whether to buy one asset rather than…

A: The Capital Asset Pricing Model is a model that describes the relationship between the expected…

Q: 3. The beta for the risk-free investment is closest to: A) 1. B) 0. C) Unable to answer this…

A: Beta is a measure of systematic risk which cannot be eliminated through diversification.  In other…

Q: then these assets vary in

A: The constant growth model is a method for valuing the share price of a stock. It calculates the…

Q: if asset A has lower volatility than asset B, then it contributes less to the overall volatility…

A: Volatility is change in expected rate of assets from the mean return and it shows the risk involved…

Q: QUESTION:How do investors make decision to invest into a portfolio which is the combination of 2…

A: The correlation coefficient shows relationship between the 2 variables.

Q: Let rf be the risk free rate of interest. E[r e ] be the expected return of some risky asset.…

A: CAPM: CAPM is also called as Capital assets pricing model. Factors affecting CAPM return are risk…

Q: 6. Capital market line A. is formed by combining the risk-free asset with an efficient portfolio B.…

A: The correct answer to the question is option D. All of the above.

Q: When modeling the expected return of an income producing property, why should it be defined, for…

A: Step 1: Understand the concepts of NOI growth and vacancy rate.NOI (Net Operating Income) Growth:…

Q: The capital asset pricing model is given by R - Rf = a + B(RM-Rf) + E, where RM = expected return on…

A: The Capital Asset Pricing Model (CAPM) Explained: The Capital Asset Pricing Model (CAPM) is a…

Q: The efficient frontier represents a combination of which of the following? a. Only portfolios

A: The efficient frontier represents a combination of:a. Only portfoliosb. A portfolio of risky…

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.