Your fellow intern at your investment company is asking you for clarification on Portfolio Theory. Answer...

Transcribed Image Text:

Your fellow intern at your investment company is asking you for clarification on Portfolio Theory. Answer the three questions the intern has. 1. What is the difference between the expected return of a portfolio and the actual return of a portfolio? 2. What is the purpose of including the risk-free asset in the Capital Asset Pricing Model? 3. If Company A is sitting above the Security Market Line and Company B is sitting below the Security Market Line, then what investment decisions should you make, if the Capital Asset Pricing Model is assumed to be correct? Explain your answer. (Total 9 marks) Your fellow intern at your investment company is asking you for clarification on Portfolio Theory. Answer the three questions the intern has. 1. What is the difference between the expected return of a portfolio and the actual return of a portfolio? 2. What is the purpose of including the risk-free asset in the Capital Asset Pricing Model? 3. If Company A is sitting above the Security Market Line and Company B is sitting below the Security Market Line, then what investment decisions should you make, if the Capital Asset Pricing Model is assumed to be correct? Explain your answer. (Total 9 marks)

Answer rating: 100% (QA)

1 The expected return of a portfolio is the return that an investor anticipates receiving based on t... View the full answer