Suppose that we can describe the world using two states and that two assets are available, asset K an asset L. We assume the asset's future prices have the following distribution State Future Price Asset K Future Price Asset L 1 $60 $55 $45 2 $30 The current price of asset K is $50, and the current price of asset L is $50.

Q: You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate…

A: Profitability Index(P.I.) is an extension of net present value(NPV) analysis which shows relative…

Q: Define beta risk

A: The portfolio beta is a measure of the portfolio’s volatility. It measures how the stock moves in…

Q: How do an investment's required rate of return vary with perceived risk? Explain with an example?

A: Required rate of return refers to the rate which the investors expects from their investments. This…

Q: What are the components of the risk-free rate?

A: risk free asset: it is the asset which does not carry any risk.

Q: What happens to the SML graph when risk aversion increasesor decreases?

A: Risk Aversion: The ability of a human being to avoid the risk and eventually reducing losses that…

Q: Define the term Risk-free real return?

A: Risk-free real return is a hypothetical number that mirrors the foreseen return on a venture that…

Q: eristics?

A: Step 1   Risk is defined as an occurrence that harms financial performance and/or reputation as a…

Q: explain what is the risk-return principle with one example

A: The risk-return principle is a fundamental concept in finance that states that the potential return…

Q: What is the internal rate of return?

A: Internal rate of return is the discount rate at which present value of cash inflows equals outflows…

Q: The efficient frontier measures risk by using: Group of answer choices B. Correlation A. Risk-free…

A: Efficient frontier refers to the graphical representation of the set of optimal portfolios…

Q: 5. Under what circumstances will the coefficient of variation of a security's returns and the…

A: The coefficient of variation (CV) and the standard deviation (SD) are both measures of risk in…

Q: What are quantitative measurements versus non-quantitative measurements with respect to risk?

A: Risk is used to describe the probability or uncertainty related to a future event with a favorable…

Q: Define within-firm risk

A: Within-firm risk: Corporate (within-firm) risk is a hazard identified with an individual business.…

Q: What does maturity matching mean, and what is the logic behindthis policy?

A: Maturity matching It is a financing strategy for working capital. Under this strategy, financing of…

Q: What is the y risk-free investment?

A: Risk-free rate of return is the rate of return that an investor expects from an investment in any…

Q: What does it mean when you have a risk-free guaranteed rate? Give an example as well as the…

A: Theoretically, an investor anticipates a return of no less than the risk-free rate on any investment…

Q: What is the significance of finding the internal rate of return?

A: IRR helps to check the viability of the project. If IRR is more than Kc than Project seems to be…

Q: Define the term Trade-Off between Risk and Reward?

A: Risk-Reward trade off refers to an investment principle which indicates higher the risk, higher is…

Q: What is perfect hedge?

A: Hedge: A hedge is referred as an investment to decrease the risk of opposing price movements in an…

Q: What role does MAD play in evaluating a forecasting model?

A: MAD refers to mean absolute deviation. It is also known as average absolute deviation which is the…

Q: What is the difference between the possible returns and the expected return?

A:

Q: What is future value, FV?

A: Future Value: The future value is the value of the present amount compounded at an interest rate…

Q: Explain the difference between a linear risk and a nonlinear risk.

A: Linear risk is an enterprise's risk, based on the traditional economic system of "take-up-dispose."…

Q: What security provides a good estimate of the real risk-free rate?

A: A Treasury bill (T-Bill) is the short-term liability of US public debt supported for 1 year or…

Q: Basic Elements of Risk-Adjusted Returns?

A: Introduction: Risk adjusted return is a methodology for calculating and evaluating the returns on an…

Q: Which alternative is considered to be riskier, all else equal? and why?

A: Debt and Equity mix or only equity are the forms of capital structure which is chosen by the entity…

Q: What type of risk is measured by the standard deviation?

A: Standard deviation is the measure of risk that the actual return of an investment will deviate from…

Q: Why does riskiness increase with time?

A: Risk can be said as that difference that arises which arises on expected outcome or investment's…

Q: What kind of investment is considered to be risk-free?

A: A risk-free investment is an investment that has a minimum or no fluctuation from the expected…

Q: averse

A: Risk is involved in everything. Risks will be there right from the task that we do till the…

Q: What is the relationship of risk to the investment?

A: There is a direct relationship between risk and return in investment decision making. It means…

Q: What is commercial risk?

A: In financial terms, risk is defined as the possibility that the real profits from an outcome or…

Q: What is historical beta?

A: Step 1: Introduction Beta is a measure of systematic risk or it measures the volatility of a stock…

Q: What is the difference between hedging risk and spreading risk?

A: Hedging risk is a strategy used to reduce the risk of adverse price movements in a financial asset…

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.