Markowitz theory indicates to create and construct a portfolio of assets to maximize returns within a given level of risk, or to devise one with a desired, specified and expected level of return with the least amount of risk. Under this broader concept, answer the followings: Justify, why an optimal portfolio should lie on security market line curve

Q: In an efficient market when asset expected returns are plotted against asset betas, then all assets…

A: EFFICIENT MARKET IS THE MARKET WHICH CORRECTLY PRICE THE ASSET

Q: Optimal portfolios can be obtained without diversification. True or false?

A: optimal portfolio are the one that minimises the risk for given level of return.

Q: Clearly explain the difference between systematic risk and non-systematic risk and  discuss the…

A: Risk is the possibility of loss to a company due to unforeseen circumstances. Beta is the measure of…

Q: process

A: The optimal portfolio for any investor would include both risk free assets & risky assets. The…

Q: Which of the following statements is correct concerning a mean-variance efficient portfolio of risky…

A: Every investor expects a higher return for a high level of risk they take. Investors who are willing…

Q: Risk and Return Suppose you hold an asset that delivers a return R;. You wish to hedge against a…

A: Each asset has different return as per their risk level. CAPM measures the asset return or portfolio…

Q: If you introduce a risk free asset in your portfolio of risky assets; how will this change the shape…

A: In any portfolio there are two types of risk; risk from general market conditions and risks from…

Q: . Write out the equation for the Capital Market Line(CML), and draw it on the graph. Interpret…

A: The capital market line has a slope of and intercept of .Therefore, the equation for the capital…

Q: Compare and contrast the MPT with the CAPM with reference to the following aspects: Risk…

A: MPT(Modern Portfolio theory ) :- It consists of Calculation of total risk through means of standard…

Q: Markowitz theory indicates to create and construct a portfolio of assets to maximize returns within…

A: Markowitz theory is built to make optimal portfolios for optimizing returns in an assumed risk…

Q: Explain Systematic (market risk) and Business-specific risk. Can diversification of the portfolio…

A: Systematic risk: The risk associated to the whole segment of the market is called as systematic…

Q: In what way(s) might one consider implementing the bottom-up strategy for a diversifyed portfolio?

A: Top down and bottom up approaches are used while investor is selecting among various investment…

Q: Discuss the difference between Systematic Risk and Unsystematic Risk. What kind of strategies we can…

A: Risk in finance is the situation that may or may not arise in the future and has an impact on the…

Q: Portfolio diversification is the cornerstone of reducing risk in a portfolio. How would you use the…

A: Portfolio diversification  Portfolio diversification could be a risk management strategy that…

Q: Explain the concept of 'beta within the frame work of CAPM model. Discuss the relevance of the…

A: CAPM is the Capital asset pricing model. The formula is: Expected return=Risk free rate+Beta×Market…

Q: What is the expected return on a portfolio? How can the expected return on a portfolio be…

A:

Q: Consider the following financial market with two risky assets x and y as well as a risk-free asset…

A: Any location or system that gives buyers and sellers the ability to exchange financial assets, such…

Q: The amount invested is one of the required inputs in a portfolio optimization model. True or False

A: Portfolio optimization is the process where the best portfolio out of many is chosen based on the…

Q: Question # 3. Markowitz theory indicates to create and construct a portfolio of assets to maximize…

A: The optimal portfolio is one, that minimizes the risk for a given level of return or maximizes the…

Q: Familiarity with random variables is essential to understand the basics of portfolio theory. It is…

A: The portfolio is evaluated based on the risk and return. Measures such as mean, variance, standard…

Q: What assumption about risk-adjusted techniques for measuring performance poses a potential problem?…

A: Uneven price change is the main problem in the Risk adjusted performance measurement. Options given…

Q: Explain the criteria for assessing performance of a security, namely, expected rate of return,…

A: Security Evaluation Criteria are usually presented as a set of parameter thresholds that must be met…

Q: What does it mean that portfolio diversification can reduce risk, and how does the efficient…

A: Risk is the measurable probability of loss on an investment. It includes the possibility of losing…

Q: How can you justify applying the top-down approach in a diversifyed portfolio?

A: A well diversified portfolio is one which is efficient to minimize the company specific risk by…

Q: Which of the following investment strategies involves generating a higher expected rate of return…

A: The risk and return of investment are usually positively related. An investor cannot earn an extra…

Q: Which of the following portfolios achieves the highest Sharpe ratio? (check all that applies)…

A: Sharpe ratio of portfolio indicates the how much is the performance of portfolio based on the the…

Q: Explain the following Financial Terminology and then determined the relationship between its.…

A: Efficient Portfolio – It is the Portfolio that lines on the CML (capital market line) and maximizes…

Q: Why would an investor prefer a constrained portfolio optimization approach?

A: Portfolio is a collection of securities or investments. Portfolio includes stocks, bonds, cash…

Q: We said that options can be used either to scale up or reduce overall portfolio risk. What are some…

A: Options are the financial instruments that derive their value from the assets underlying the option…

Q: Which is least likely correct about security valuation? a. The calculated or determined value…

A: Security valuation is technique o knowing the value of securities.

Q: Another name for the expected value of an investment would be: Answer a. The mean value b. The…

A: An Expected Value is an anticipated value for an investment at some point in future.

Q: Discuss the role of risk-free assets in the Markowitz Portfolio Theory.

A: Harry Markowitz always focused on lowering the risk and diversification in order to maximize the…

Q: Which of the following statements correctly describe aspects of the diversification benefit…

A: A portfolio between stocks is formed to reduce the total risk incurred on the investment. The…

Q: Markowitz theory indicates to create and construct a portfolio of assets to maximize returns within…

A: Portfolio is a bundle of various investments. To minimise or manage the risk, investors invest the…

Q: According to modern portfolio theory, pair-wise covariance is more important to total portfolio risk…

A: According to modern portfolio theory, every investment's risk and return characteristics should not…

Q: Please explain the risk vs. expected rate of return tradeoff, the security market line, and…

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

Q: Rational risk-averse investors will always prefer portfolios ______________. Group of answer…

A: The difference in the capital market line and the efficient frontier is that in - Capital market…

Q: When assessing investment performance, what statistical notion do many portfolio managers employ to…

A: Portfolio managers are those who make investing decisions. They create and implement investment…

Q: Q. Markowitz theory indicates to create and construct a portfolio of assets to maximize returns…

A: The optimal portfolio should be on SML because portfolios lying on that line are having maximum…

Q: A portfolio manager applies a combination of value and low-volatility investment strategies and uses…

A: Alpha is the extra return generated by portfolio manager with his skills rather than luck.

Q: Which are the different assets that have the potential to be combined efficiently in a portfolio…

A: The efficient frontier graphically represents portfolios that maximize returns for the risk assumed.…

Q: Compare and contrast the risk versus expected rate of return tradeoff, the security market line, and…

A: Risk is an important factor in overall investment process and risk is directly correlated with the…

Q: Construct a plausible graph that shows risk (asmeasured by portfolio standard deviation) on…

A: A feasible set of portfolios are the set of all the portfolios that generate a maximum range of…

Q: What statistical concept do many portfolio managers use to represent a risk when considering…

A: The return an individual or organisation gets from any investment portfolio is termed as investment…