Category Archives: RISK AND RETURN

Optimal Portfolio

Optimal Portfolio A rational investor seeks an efficient portfolio tangent to the highest attainable indifference curve. It may be noted that the shape of the indifference curve may be linear or curvilinear. The point of tangency between the efficient frontier and risk- return indifference curve corresponds to the optimal portfolio for the concerned investor. Indifference curve IC, is tangent to the efficient f

Investors Risk Preference (Table)

Portfolios on the Same Indifference Curve TABLE Portfolios on the Same Indifference Curve   Finance-Assignments.comInstructions Feel free to send us an inquiry, we reply back real quick. Or directly email us at order@finance-assignments.comName *Email *Phone *Requirements/ Instructions File Upload File Upload File Upload  VerificationPlease enter any two digits *Example: 12This box is for spam pro

Investors Risk Preference

Investor's Risk Preference Rational investors invest in efficient portfolios. The choice of an optimal portfolio from efficient portfolios depends on the risk-return trade-off for the investor, A risk-averse investor seeks risk-free opportunities or considers risk) opportunities with positive risk premium (compensation for additional risk). Other things being equal, a highly risk-averse investor holds a portfoli

Capital Market Line

Capital Market Line The capital market line (CML) is a capital allocation line (CAL) provided by one-month T-bills as a risk-free asset and a market index portfolio like Dow Jones. Standard and Poor’s and N’YSE, as the risky asset. It is one of the two element of the CAPM the other being the security market line (SML). All investors end up somewhere alone the CML. The CML indicates (i) The focus of a

Market Portfolio

Market Portfolio In the preceding discussion on the CAL, portfolio M was identified is the universally desirable portfolio of risky assets. It has the property of maximizing return per unit of risk (standard deviation) as the steepest CAL passes through it. What is the nature of this portfolio M? How is it constructed? Portfolio M refers to !Ill” market portfolio theoretical construct credited to Prof, Eu

Efficient Frontier With Borrowing

Efficient Frontier With Borrowing So far, portfolios have been constructed from owned funds. With o~ funds, the efficient frontier of Porfirio with one risk-free asset ends at point M. Extending FM beyond M shows further.opportunities for higher return. Are these opportunities real or hypothetical? What should an investor do to exploit these opportunities?  These are real opportunities, which the investor can a

Efficient Frontier With One Risk-free Asset

Efficient Frontier With One Risk-free Asset  (A risk-free security) Is one that has zero variance and, hence, standard deviation (square root of variance). James Tobin has pointed out that (a) Portfolio made up of risky asset and one risk·free asset generate investment opportunities (portfolio opportunity set) with linear relationship between expected return and risk; (b) One such Efficient Frontier With On

Efficient Frontier With Margined Short Sales

Efficient Frontier With Margined Short Sales A short sale occurs when a person sells a second person an asset (security) borrowed from a third person (broker). A short seller seeks to profit from the expected fall in price, which mayor may not take place. The margin here means the specified percentage of the market value of the transaction that the short seller (borrower of security), deposits with the lender (

Dominated and Efficient Portfolios (Table)

Dominated and Efficient Portfolios TABLE Dominated and Efficient Portfolios   Finance-Assignments.comInstructions Feel free to send us an inquiry, we reply back real quick. Or directly email us at order@finance-assignments.comName *Email *Phone *Requirements/ Instructions File Upload File Upload File Upload  VerificationPlease enter any two digits *Example: 12This box is for spam protection - plea

Efficient Portfolios (Example)

EXAMPLE To illustrate the concepts of dominance and efficient frontier, let us take a simple example with two assets X (expected return 10 per cent, standard deviation 15 per cent) and Y (expected return 20 per cent, standard deviation 26 per cent), low positive correlation between their returns permits diversification gains. A large number of portfolios can be formed by blending these assets in different propor