Question

Parts c,d,e,f

Just bullet points on what I can write will do

1. Answer three parts of the following question. Your answer for each part should be no longer than two (a) Suppose you know that Portfolio P is an efficient portfolio. What does this tell you about its position (b) You hold a two risky-asset portfolio and short-selling is not permitted. Is it possible that the less risky (c) Show how one can use the security market line to evaluate portfolio performance. pages long. with respect to the capital and security market lines? of the two assets is the minimum variance portfolio (MVP)? Discuss. (d) Describe and graphically illustrate Markowitz' portfolio optimisation solution if a risk-free asset is not (e) Assume for simplicity sake that one factor has been deemed appropriate to "explain" returns on stocks (f) How would you perform a test of the predictions o available. and there is no idiosyncratic risk. Derive the arbitrage pricing theory (APT) model. on asset and market portfolio returns? f the capital asset pricing model given historical data

Answer 1

A). portfolio shows how much and where money is invested in terms of the risk appitite of the investor. Capital security market investment involves investment in fixed income products for less risk and stocks , derivatives and fx interms of a high risk appitite. Efficient portfolio involves investment generating required returns for the required risk appitite.

C). When you invest in securities market the floating and spot rate based on the investment can be used to evaluate the portfolio.

B). Usually risky investment are hedged together to attain desired rate of return which is the concept of minimum varience portfolio. So in this case mvp is not possible with less risky securities because mvp is done with a combination of high risky securities