Question

You plan to form a two-security portfolio and you have collected all the historical returns from...

You plan to form a two-security portfolio and you have collected all the historical returns from two securities. Therefore, you try to find out the trade off between expected rate of return and standard deviation (risk) by connecting the dots that represent different combinations of two securities in an expected return-standard deviation diagram.

This curve that connects all the dots represents different combinations of two securities in an expected return-standard deviation diagram is called:

A.

security market line.
B.

portfolio opportunity set.
C.

capital market line.
D.

capital allocation line.
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The correct answer is Capital market line

The Capital market line represents the different combinations of expected returns and the standard deviation. The capital market line starts from Y-Axis and the difference between Y-Axis and X-Axis represents the risk free assets and the expected return of an investor will starts moving upward as we add more risk to the portfolio. The Capital market line helps to optimize the relationship between risk and return which gives maximum returns to the investor.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose you own a portfolio with two securities. Security A has an expected return of 13.4%...
Suppose you own a portfolio with two securities. Security A has an expected return of 13.4% and a standard deviation of 55% per year. Security B has an expected return of 9.3% and a standard deviation of 32% per year. Considering that your portfolio is composed of 35% of Security A and 65% of Security B, and that the correlation between their returns is .25, what is the standard deviation of your portfolio? Select one: a. 31.68% b. 40.05% c....
​(Security market​ line)  You are considering the construction of a portfolio comprised of equal investments in...
​(Security market​ line)  You are considering the construction of a portfolio comprised of equal investments in each of four different stocks. The betas for each stock are found​ below: Asset Beta A 2.30 B 1.05 C 0.45 D         −1.70 a.  What is the portfolio beta for your proposed investment​ portfolio? b.  How would a 25 percent increase in the expected return on the market impact the expected return of your​portfolio? c.  How would a 25 percent decrease in the expected...
If you have one security with an expected return of 7% and a standard deviation of...
If you have one security with an expected return of 7% and a standard deviation of 2% and a second security with an expected return of 13% and a standard deviation of 2.4%, what would be the standard deviation of a portfolio that consists of 30% of the first security and 70% of this second security if the correlation coefficient between the two securities is -.30?
Suppose you can invest in N risky securities, but you cannot invest in risk free security....
Suppose you can invest in N risky securities, but you cannot invest in risk free security. Then, your optimal choice is to A. invest in 1 of N securities, the one with the smallest correlation coefficient with other N-1 securities B. invest in 1 of N securities, the one with the highest expected return and lowest standard deviation. C. invest in the portfolio of N securities, such that the portfolio you invest in is a tangency point between the capital...
You have the following information on two securities in which you have invested money: Security Expected...
You have the following information on two securities in which you have invested money: Security Expected Return Xerox 15% Kodak 12% Standard deviation 4.5% 3.8% Beta %Invested 1.20 35% 0.98 65% The rate of return on the market portfolio is 17% and the risk-free rate of return is 7.5%. a) Compute the expected return on the portfolio. b) Compute the beta of the portfolio. c) Compute the required rate of return on the portfolio using the CAPM. d) Is the...
As an analyst you have gathered the following information: Security Expected Standard Deviation Beta Security 1...
As an analyst you have gathered the following information: Security Expected Standard Deviation Beta Security 1 25% 1.50 Security 2 15% 1.40 Security 3 20% 1.60 (i)      If the expected market risk premium is 6% and the risk-free rate is 3%, what will be the required rate of return on each of the above securities, and which of the security has the highest required return? (ii)     With respect to the capital asset pricing model, if expected return for Security 2...
Assume for parts (a) to (c) that the Capital Asset Pricing Model holds. The market portfolio...
Assume for parts (a) to (c) that the Capital Asset Pricing Model holds. The market portfolio has an expected return of 5%. Stock A's return has a market beta of 1.5, an expected value of 7% and a standard deviation of 10%. Stock B's return has a market beta of 0.5 and a standard deviation of 20%. The correlation between stock A's and stock B's returns is 0.5. 1.what the risk-free rate? What is the expected return on stock B?...
You are thinking of adding one of two investments to an already well-diversified portfolio. Security A...
You are thinking of adding one of two investments to an already well-diversified portfolio. Security A Security B Expected return=12% Expected return= 12% Standard deviation of returns 20.9%/ Standard deviation of returns = 10.1% Beta = 0.8 Beta = 2.1 If you are a risk-averse investor, then:
You can form a portfolio of two assets, A and B, whose returns have the following...
You can form a portfolio of two assets, A and B, whose returns have the following characteristics: Expected Return Standard Deviation Correlation A 6% 19% .4 B 18 41 a. If you demand an expected return of 15%, what are the portfolio weights? (Do not round intermediate calculations. Round your answers to 3 decimal places.) Stock Portfolio Weight A B b. What is the portfolio’s standard deviation? (Use decimals, not percents, in your calculations. Do not round intermediate calculations. Enter...
Following information is available about two securities which constitute a portfolio: Security Expected return Std. deviation%...
Following information is available about two securities which constitute a portfolio: Security Expected return Std. deviation% A 14% 40 B     18% 20 Correlation coefficient (A,B) is -0.45. The portfolio consists of 40% of A and 60% of B. Find out the expected returns and standard deviation of the portfolio.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT