Portfolio Management - Portfolio Management Section 1
- Option : A
- Explanation : Stock returns are usually negatively skewed because there is a higher frequency of positive deviations from the mean and most of the distribution is concentrated to the right.
- Option : C
- Explanation : The real of return and risk premium are calculated as: Real rate of return = [(1 + 0.1) / (1 + 0.03)] - 1 = 6.8% Risk Premium = [(1 + 0.068) / (1 + 0.02)] - 1 = 4.7%
- Option : C
- Explanation : As one moves from left to right along an efficient frontier, the increase in return with every unit increase in risk keeps decreasing because the slope of the efficient frontier continues to decrease.
- A
For a given level of risk, Investor A’s maximum return is depicted by the CAL and Investor B’s maximum return is depicted by the efficient frontier.
- B
For a given level of risk, Investor A’s maximum return is depicted by the efficient frontier and Investor B’s maximum return is depicted by the CAL.
- C
For a given level of risk, the maximum return for both investor is depicted by the efficient frontier.
- Option : B
- Explanation : Since Investor A only invests in risky assets, the highest return for a given level of risk is indicated by the efficient frontier. Investor B invests in the risk free asset as well. For him, the highest return for a given level of risk is indicated by the capital allocation line (CAL).
*/?>
*/?>
*/?>
*/?>