When forming portfolio with assets of different risk and return profile, which of the following is...
When forming portfolio with assets of different risk and return profile, which of the following is the advantage of the portfolio compare to individual asset investment?
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reduced risk from the portfolio relative to the individual assets |
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enhanced return from the portfolio over the individual assets |
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both enhanced return and reduced risk from the portfolio over the individual assets |
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there is no advantage for the portfolio over the individual assets |
Homework Answers
| Option : Both enhanced return and reduced risk from the portfolio over the individual assets. | |||||||||
| 1. Because the portfolio management concentrate on theme " Diversification Reduces Risk and | |||||||||
| improves return. | |||||||||
| 2. If the portfolio of assets consist of the diversified assets and having correlation between them | |||||||||
| would absorb the shock of loss in one asset to the profit of there asset in portfolio. | |||||||||
| 3. There are theories which support the concept of "Zero Risk to Portfolio" by making appropriate | |||||||||
| proportions mix in portfolio. | |||||||||
| 4. Why diversification ? Because the common parlance is that if one asset could not perform in the | |||||||||
| portfolio, then the other asset could perform. While designing the portfolio if self one should | |||||||||
| consider proper correlation between assets | |||||||||
| As per the above explanation, the other option could not be suggestible and are is incorrect. | |||||||||
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