The optimum portfolio would be the one which maximizes investors expected wealth at a given level of risk. This means, option (A) is the correct option.
(B) is not the option as we have to maximize the wealth with respect to the investor's risk appetite and not the other way around.
(C) is not the correct option as proportion of each stock to be invested in, depends on the expected return and risk of the given stock.
(D) The most efficient portfolio is the one which is highly diversified with stocks which have low correlation between them.
42. An investment manager is analyzing 10 possible stocks to include in a client's portfolio. In...
An investment manager is looking at 10 possible stocks to include in a client's portfolio. In order to achieve the maximum efficiency of the portfolio, the manager must A. find the combination of stocks that produces a portfolio with the maximum expected rate of return at a given level of risk. B. include only the stocks that have the lowest volatility at a given expected rate of return C. include all 10 stocks in the portfolio in equal amounts D....
You wish to invest in a portfolio of stocks A and B. The risk free rate is 4%. A B Expected return (%) 10 20 Volatility (%) 15 22 Correlation between returns 0.3 Complete the following table for each portfolio Which portfolio has the highest reward to risk (with risk measured as volatility)? Portfolio % in A Expected Return Standard Deviation of Return Sharpe Ratio 1 30% 2 40% 3 50%
The risk-free rate is 0%. The market portfolio has an expected return of 20% and a volatility of 20%. You have $100 to invest. You decide to build a portfolio P which invests in both the risk-free investment and the market portfolio.a. How much should you invest in the market portfolio and the risk-free investment if you want portfolio P to have an expected return of 40%?b. How much should you invest in the market portfolio and the risk-free investment...
98) Which of the following statements is FALSE A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a porfolio in which the same amount is invested in eadh stock C) As the number of stocks in a portfolio grows large, the variance of the portfolio is determined primarily by the average covariance among the stocks D) When combining stocks into a portfolio that puts positive weight on each stock, unless...
2. You are the risk manager in a major investment bank. The bank's current portfolio consists of U.S. stocks (50%), bonds (20%), and derivatives (30%). The expected returns and standard deviations of these investments are Expected Return Standard Deviation Stocks Bonds Derivatives 13% 17% 25% 25% 9% 50% A trader comes up with an idea about investing in some new emerging markets: the markets of Polynesia, Micronesia, and New Caledonia. These markets have the follow- ing characteristics: 18% Expected Return...
A fund manager decides to diversify investment holdings and purchases shares in 40 different U.S. stocks in a number of different industries. Which of the following would be the appropriate measure of the risk and required rate of return for the portfolio? Beta and the capital asset pricing model (CAPM) Correlation matrix and the return on investment Standard deviation and discounted cash flow Coefficient of variation and expected return on equity
Suppose you're crafting a portfolio of two stocks. You plan to buy $6,000 worth of the first stock and $14,000 worth of the second stock. The first stock has an expected annual return of 10% and volatility of 40%. The second stock has an expected annual return of 8% and volatility of 30%. The risk-free rate is 1%. The correlation coefficient of the two stocks' returns is 0.1. 1. What is the Sharpe Ratio of the first stock. Round to...
5.2 Risk premium Consider a portfolio consisting of the following three stocks: The volatility of the market portfolio is Correlation with the Market Portfolio 0.35 0.52 0.54 Volatility 13% 28% 11% Portfolio weight 0.26 0.29 0.45 EC Cor Green Midget Alive And Well 10% and it has an expected return of 8%. The risk-free rate is 3% 1. Compute the beta and 2. Using your answer from question (1), calculate the expected return of the portfolio 3. What is the...
A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk analysis an integral part of the field of finance. Just like stand-alone assets and securities, portfolios are also exposed to risk. Portfolio risk refers to the possibility that an investment portfolio will not generate the investor’s expected rate of return. Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio. Consider the...
Please walk me through steps to enter into excel! Thank you. 10. An investment advisor at Shore Financial Services wants to develop a model that can be used to allocate investment funds among four alternatives: stocks, bonds, mutual funds, and cash. For the coming investment period, the company developed estimates of the annual rate of return and the associated risk for each alternative. Risk is measured using an index between 0 and 1, with higher risk values denoting more volatility...