a)
To discuss:
Risk preferences.
Introduction:
Risk: The risk can be defined as the uncertainty attached to an event such as investment where there is some amount of risk associated to it as there can be either gain or loss.
Return: In financial context, return is seen as percentage that represents the profit in an investment.
The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.
b)
To discuss:
Risk preferences.
Introduction:
Risk: The risk can be defined as the uncertainty attached to an event such as investment where there is some amount of risk associated to it as there can be either gain or loss.
Return: In financial context, return is seen as percentage that represents the profit in an investment.
The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.
c)
To discuss:
Risk preferences.
Introduction:
Risk: The risk can be defined as the uncertainty attached to an event such as investment where there is some amount of risk associated to it as there can be either gain or loss.
Return: In financial context, return is seen as percentage that represents the profit in an investment.
The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.
d)
To discuss:
Risk preferences.
Introduction:
Risk: The risk can be defined as the uncertainty attached to an event such as investment where there is some amount of risk associated to it as there can be either gain or loss.
Return: In financial context, return is seen as percentage that represents the profit in an investment.
The standard deviation measures the volatility of the stock. It measures in absolute terms the dispersion of asset risk around its mean.
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Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
- PLEASE ANSWER ALL THE QUESTIONS Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nine line items. Question 2 Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what does it show? Identify undervalued/overvalued investments from the graph Question 3 From the information generated in the previous two questions; a) Identify two investment alternatives that can be combined in a portfolio. Assume a 50-50 investment allocation in each investment alternative. b) Compute the expected return of the portfolio thus formed. c) Compute the portfolio’s beta. Is the portfolio aggressive or defensive?arrow_forwardProblem 3: Investments X and Y both offer the same expected rate of return. The standard deviation of X is lower than that of Y's standard deviation. If an investor needs to choose between the two, which investment should he invest in? Problem 4: Investments C and D both offer the same standard deviation. The expected return of C is higher than that of D's expected return. If an investor needs to choose between the two, which investment should she invest in? Problem 5: Suppose the beta of Company A is 0.8, the risk-free rate is 2.7 percent, and the market risk premium is 5.5 percent. Calculate the expected return for Company Aarrow_forwardSharon Smith, the financial manager for Barnett Corporation, wishes to select one of three prospective investments: X, Y, and Z. Assume that the measure of risk Sharon cares about is an asset's standard deviation. The expected returns and standard deviations of the investments are as follows: Investment Expected return Standard deviation X 17% 7% Y 17% 8% Z 17% 9% a. If Sharon were risk neutral, which investment would she select? Explain why. b. If she were risk averse, which investment would she select? Why? c. If she were risk seeking, which investments would she select? Why? d. Suppose a fourth investment, W, is available. It offers an expected return of 18%,and it has a standard deviation of 9%. If Sharon is risk averse, can you say which investment she will choose? Why or why not? Are there any investments that you are certain she will not choose?arrow_forward
- You are given the following data about Asset A and Asset B. Asset A Asset B Expected returns 8.6% 7.9% Standard Deviation 3.8% 4.6% Assuming that an investor is to choose between Asset A or Asset B, explain which asset a rational investor will choose. c) With the use of a diagram, explain why an investor will always choose a point on the SML line.arrow_forwardQuestion 1Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Question 2 Using the data generated in the previous question (Question 1)a) Plot the Security Market Line b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML?d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the grapharrow_forwardb. As an equity portfolio manager, you may use certain risk-adjusted performance measures. Describe and discuss the following measures of performance evaluation! Treynor Index, William Sharpe, Michael Jensen Using the following table evaluate which is better than other using three different measure of performance evaluation. Asset X E(R)% 12 beta Stdv 1.25 16 Y 11 1.0 12 Risk-free 3 0 0 Market index 12 1 12arrow_forward
- Clients today require their investments to not only produce genuine impact but also constant positive returns. As the portfolio manager explain to your client how you will maintain a positive return on the current portfolio selected. Please answer #1 to #3 Explain the selection of optimal portfolios. Describe the portfolio approach to investing and the portfolio management process Differentiate between financial and non-financial sources of risks Incorporate the appropriate performance measures for portfolios Evaluate asset returns using the CAPM and other models such as The Sharpe ratio, the Treynor measures and Jensen’s Alphaarrow_forwardAccording to Wald's criterion, which investment is decided by looking at the profitability of three investments such as S1, S2 and S3 in the following economic environments? Ekonomik Durumlar S1 S2 S3Canlı Ekonomik Durum 13 6 7Normal Ekonomik Durum 10 9 8Durgun Ekonomik Durum 7 14 4Resesyon Durumu 8 7 15 Economic Conditions S1 S2 S3 Vivid Economic Situation 13 6 7 Normal Economic Condition 10 9 8 Stagnant Economic Condition 7 14 4 Recession Condition 8 7 15arrow_forwardAccording to Wald's criterion, which investment is decided by looking at the profitability of three investments such as S1, S2 and S3 in the following economic environments? Economic Conditions S1 S2 S3 Vivid Economic Situation 13 6 7 Normal Economic Condition 10 9 8 Stagnant Economic Condition 7 14 4 Recession Condition 8 7 15arrow_forward
- Which of the following investments does a rational investor prefer? a. Investment A: E(R) = 12%, σ = 5% b. Investment B: E(R) = 10%, σ = 5.5% c. Investment C: E(R) = 11%, σ = 6% d. Investment D: E(R) = 11.5%, σ = 6%arrow_forwardQ/ Demonstrating the formation of an investment portfolio from the two sides (G.H) if the rates of return are favorable for each of them As follows - RG = 0.16,0.24,0.26, 0.14,0.20 RII = 0.32,0.24,0.28,0.20,0.36 %3D Required 1- Assuming that the investor will shape this portfolio. He allocated u of his wealth to the first investment and 25% of it to the second investment, and the correlation coefficient = 1 %3D what is The expected rate of return for the portfolioarrow_forwardA. Briefly explain three risk exposures that an analyst should report as part of anenterprise risk management system.Page 4 of 10B. Define market risk and the economic parameters considered when calculatingmarket risk.C. Explain the concept of ‘beta’ within the framework of the Capital Asset PricingModel (CAPM). Discuss the relevance of the covariance between assets returnsfor an investor wishing to diversify the risk of a portfolioarrow_forward