In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the following investments in asset classes: Weight return Bonds 20% 12% stocks 80% 17% The return on a bogey portfolio was 12%, based on the following: Weight Return Bonds(aggregate bond index) 60% 10%
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.
In a particular year, Salmon Arm Mutual Fund earned a return of 16% by making the following investments in asset classes:
| Weight | return | |
| Bonds | 20% | 12% |
| stocks | 80% | 17% |
The return on a bogey portfolio was 12%, based on the following:
| Weight | Return | |
| Bonds(aggregate bond index) | 60% | 10% |
| Stocks (S&P 500 index) | 40% | 15% |
The total excess return on the managed portfolio was __________.%
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