a) Explain the relationship between risk and return on Investment
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- Capital asset pricing theory asserts that portfolio returns are best explained by:a. Economic factors.b. Specific risk.c. Systematic risk.d. Diversification.Asset pricing Models provide a logical basis for computing the risk premiums anddetermining the asset price. Describe using CAPM and APT. Also differentiatebetween CAPM & APT. Also discuss its assumptions. This question is related to Investment Analysis and Portfolio ManagementQuestion 1 Compare and contrast the Markowitz Portfolio Theory (MPT) with the Capital Asset Pricing Model (CAPM) with reference to the following aspects:Risk measurement;Risk-return graphical presentation Capital Market Line (CML) versus Security Market Line(SML);Usage in portfolio management.
- This is a generalized framework for analyzing the relationship between risk and return: a. capital asset pricing model b. diversification theory c. capital market line d. arbitrage pricing theory1. How to compare different assets in investment selection process? 2. What are the quantitative characteristics of the assets and how to measure them? 3. How does one asset in the same portfolio influence the other one in the same portfolio? 4. And what could be the influence of this relationship to the investor’s portfolio? 5. What is relationship between the returns on an asset and returns in the whole market (market portfolio)?Q.No.3. Derive the Capital Asset Pricing Model (CAMP) and also discuss the assumptions that are necessary in the development of the CAPM. Explain how CAMP related to portfolio theory. Discuss managerial applications of CAPM.
- The aspect least likely to be included in the portfolio management process isa. Identifying an investor’s objectives, constraints, and preferences.b. Organizing the management process itself.c. Implementing strategies regarding the choice of assets to be used.d. Monitoring market conditions, relative values, and investor circumstances.Refined measures of performance are commonly used to evaluate portfolio performance. a. Define and explain these measures in detail. b. How does the investor choose the right measure? Explain it fully.Describe Asset/Liability Models and explain why it is better than Value-at-Risk Models for Portfolio Management.
- Define required rate of return on a portfolioHighlight the relevance of portfolio theory in understanding nature of investments and effective portfolio managementDemonstrate the link between net present value and internal rate of return and how they may be used in conjunction with one another to evaluate investments.