In her new career in a portfolio management firm, a portfolio manager is learning the way to
Question:
In her new career in a portfolio management firm, a portfolio manager is learning the way to select securities for including in a portfolio.She has gatheredrecent data about the market and observed that the govt bond rate is 4.8 per cent and the risk premium for the market is 8.3 per cent.She has identified one security, TSR, with a beta value of 3.3 and an expected return of 19.7 per cent. She becomes confused after finding another security, ZXN, with a beta value of -1.4 and an expected return of 3.9 per cent. For further analysis, she calculated standard deviations for TSR and ZXN as 31.3 per cent and 10.8 per cent respectively. In addition, a correlation coefficient of 0.33 is calculated between returns of these two securities.The portfolio manager is asking for details about the following requirements:
RequirementDraw the Security Market Line (SML) with clear labels and plot these two securities on the graph.