What role does the correlation what role does the correlation of two assets play in computation of the expected return of the two asset portfolio ?

Q: Does the accounting (book) rate of return (ARR) method provide a valid (or, meaningful) measureof…

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Q: Explain the relationship between net present value and internal rate of return, and show how they…

A: Relationship Between Net present Value and Internal rate of Return

Q: Beta measures the sensitivity of the asset's return to variation in the market return.    What is…

A: Beta of a stock measures the sensitivity of assets return to variation in market return It means…

Q: According to the Capital Asset Pricing Model, the expected return on a risky asset depends on three…

A: Capital Asset pricing Model is used to determine the cost or expected rate of return of a stock. It…

Q: What are the two sources of value in an investment?  Given an example of each.

A: An investment is a process where the investors gives or outlays his or her capital in return of…

Q: Critically evaluate the importance of the standard deviation factor in comparing investments.

A: Standard deviation helps the investor to measure the volatility of the market. It helps an investor…

Q: Demonstrate the link between net present value and internal rate of return and how they may be used…

A: According to the question, the relationship between net present value and internal rate of return

Q: When considering multiple possible investments, why are rates of return preferable than monetary…

A: An investment's net profit or loss over a certain period expressed as a percentage of the…

Q: Expected return and standard deviation a.  What is the expected return of asset​ b?

A: The expected return is the return that an investor expects on its investment under various…

Q: why net present value is considered to be superior to internal rate of return as an investment…

A: Investment- The purchase of an asset in order to generate income or capital gain is referred to as…

Q: On Estimating Risks and Return on Assets * Statement I: Portfolio risk can be reduced by…

A: Risk is an important parameter while making investments which plays a key role in making investment…

Q: Describe the Procedures used to determine the rate of return internal to nonsimple investments?

A: Procedure to compute the rate of return internal to non-simple investmentIt is an investment for…

Q: 1. Why methods and tools of the statistics are so important in investment decision making.

A: Hello. Since your question has multiple parts, we will solve the first question for you. If you want…

Q: Describe the affects of the present value of an investment.

A: Present value of the investment: Present value of the investment is calculated using the cash flows…

Q: How would you characterize the correlations of returns of the two assets making up each of the two…

A: Portfolio can be defined as an investment which consists of multiple stocks. The objective of an…

Q: correlated

A: Covariance can be defined as a statistical tool which helps to understand the relationship that…

Q: Why are rates of return superior to dollar returns when comparingdifferent potential investments?

A: A rate of return (ROR) refers to the net income or loss of an investment over a given timeframe as a…

Q: Why may the net-present-value and internal-rate-ofreturn methods yield different rankings for…

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Q: Asset pricing Models provide a logical basis for computing the risk premiums and determining the…

A: Capital Asset Pricing Model (CAPM) is tool used to calculate the systemic risk of a asset. CAPM…

Q: What is relationship between the returns on an asset and returns in the whole mark

A: A market portfolio is a theoretical concept that means a portfolio that consists of all the stocks…

Q: Which one of the following methods of analysis is most appropriate to use when two investments are…

A: Capital budgeting techniques such as internal rate of return, net present value method, average…

Q: The expected value of an investment: Answer a. Is what the owner will receive when the investment is…

A: Expected Return refers to return anticipated by an investor while making investment. It may differ…

Q: Which approach to investment analysis is "best" in terms of accounting for both the timing and…

A: Capital budgeting is a tool or technique that helps to analyze the profitability of the project.…

Q: If net present values are used to evaluate two investments that have equal costs and equal total…

A: Net Present Value is determined by discounting net cash flows by an appropriate required rate of…

Q: Why doesn’t an estimated absolute covariance number tell the investor much about the relationship…

A: Sample Covariance means the in which the investor has not much information about the rate of return…

Q: The profitability index is another method to evaluate capital investments. If you are trying to…

A: A profitability index is a quantitative tool that can help decide whether to accept or reject an…

Q: Identify two problems of comparing investments using the payback time.

A: This question explains about  investments using the payback time.

Q: Describe the principles of asset valuation. Distinguish between the required rate of return and…

A: Asset Valuation means that a company or business is studied to understand what will be the intrinsic…

Q: explain the unique characteristics of the asset class, their associated risks and potential returns.…

A: The investments can be made using different assets basing on the risk capability and investment…

Q: What is meant by an investment project’s internal rate of return? How is the internal rate of return…

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Q: The following provides information regarding Assets X and Y. Calculate the expected rate of return,…

A: Data given: Asset X Probability Return(%) 0.10 8 0.20 9 0.30 11 0.40 12   Asset Y…

Q: When adding a risky asset to a portfolio of may risky assets, which property of the asset has a…

A: Portfolios can consist of a variety of investments such as equities, bonds, commodities, cash and…

Q: How can we invest in two assets with dissimilar return characteristics?

A: Diversification is one of the tactics to keep in mind while forming a portfolio. Investing all the…

Q: is CAPM, Sharpe ratio, Treynor measures and Jensen’s Alpha used to Evalua

A: Step 1   Portfolio management involves trading between risk and return. Most novice investors make…

Q: Which of the following are the key factors when determining asset allocation for an investment? I.…

A: Asset allocation can be defined as the strategy which involves allotment of assets of portfolio of…

Q: How to compare different assets in investment selection process?

A: “Since you have posted multiple questions, we will solve first question for you. If you want any…

Q: Describe the process to invest in two assets with similar return characteristics?

A: The investment in any asset depends upon the risk and return of the particular asset and security.…

Q: Would you expect positive covariances of returns between different types of assets such as returns…

A: Covariance is the measure of the degree to which two variables move together relative to their…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.