a. With the help of diagram(s), illustrate why the portfolio that maximize Sharpe ratio is necessarily...
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a. With the help of diagram(s), illustrate why the portfolio that maximize Sharpe ratio is necessarily the optimal risky portfolio. (5 marks) b. The securities in this question are HSBC (a bank), Swire Pacific (an airlines), MTR (a public utilities), China Mobile (a telecom giant), and China Unicom (another telecom giant). Explain why the optimal risky portfolio constructed with these securities alone is not optimal in reality? (10 marks) c. Under what conditions would capital market line (CAL) derived from Markowitz' procedures NOT be the same as capital market line (CML) in capital asset pricing model (CAPM)? (10 marks) d. In CAPM, what would CML look like if investors are allowed NO borrowing? Illustrate your answer with diagram(s). (10 marks) e. In CAPM, how would the shape of CML become if investors can only borrow at a rate higher than the risk-free interest rate? Illustrate your answer with diagram(s). a. With the help of diagram(s), illustrate why the portfolio that maximize Sharpe ratio is necessarily the optimal risky portfolio. (5 marks) b. The securities in this question are HSBC (a bank), Swire Pacific (an airlines), MTR (a public utilities), China Mobile (a telecom giant), and China Unicom (another telecom giant). Explain why the optimal risky portfolio constructed with these securities alone is not optimal in reality? (10 marks) c. Under what conditions would capital market line (CAL) derived from Markowitz' procedures NOT be the same as capital market line (CML) in capital asset pricing model (CAPM)? (10 marks) d. In CAPM, what would CML look like if investors are allowed NO borrowing? Illustrate your answer with diagram(s). (10 marks) e. In CAPM, how would the shape of CML become if investors can only borrow at a rate higher than the risk-free interest rate? Illustrate your answer with diagram(s).
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a The portfolio that maximizes the Sharpe ratio is the optimal risky portfolio because it represents the tangency point between the efficient frontier ... View the full answer
Related Book For
Core Concepts Of Accounting Information Systems
ISBN: 9780470507025
11th Edition
Authors: Nancy A. Bagranoff, Mark G. Simkin, Carolyn Strand Norman
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