Question 1 (Total 10 marks) The Capital Market Line (CML) expresses the risk-return trade-off for a...

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Question 1 (Total 10 marks) The Capital Market Line (CML) expresses the risk-return trade-off for a portfolio as follows: [E(RM) - RFR OM E(Rport) = RFR + port Required: a. Extend this expression to allow for the evaluation of any individual risky Asset i. Explain the steps in details. (6 marks) b. What are the similarities and differences between the Capital Market Line and Security Market Line as models of the risk-return trade-off? (4 marks) Question 2 Required: a. Given the following market values of stocks in your portfolio and their forecasted rates of return, what is the expected rate of return for your portfolio? (4 marks) Stock A B C D E Market value ($ millions) $15,000 $17,000 $32,000 $23,000 $7,000 Forecasted returns (Total 9 marks) 14% -4% 18% 16% 5% b. Draw a graph of the Markowitz efficient frontier, label the X-axis and Y-axis and three dominant portfolios on your graph. Explain the concept of dominate portfolios, e.g., why they dominate other portfolios in term of risk and return trade off? (5 marks) Question 1 (Total 10 marks) The Capital Market Line (CML) expresses the risk-return trade-off for a portfolio as follows: [E(RM) - RFR OM E(Rport) = RFR + port Required: a. Extend this expression to allow for the evaluation of any individual risky Asset i. Explain the steps in details. (6 marks) b. What are the similarities and differences between the Capital Market Line and Security Market Line as models of the risk-return trade-off? (4 marks) Question 2 Required: a. Given the following market values of stocks in your portfolio and their forecasted rates of return, what is the expected rate of return for your portfolio? (4 marks) Stock A B C D E Market value ($ millions) $15,000 $17,000 $32,000 $23,000 $7,000 Forecasted returns (Total 9 marks) 14% -4% 18% 16% 5% b. Draw a graph of the Markowitz efficient frontier, label the X-axis and Y-axis and three dominant portfolios on your graph. Explain the concept of dominate portfolios, e.g., why they dominate other portfolios in term of risk and return trade off? (5 marks)

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I can definitely help you with that Question 1 a Extending the CML for Individual Assets The Capital Market Line CML depicts the optimal riskreturn relationship for efficient portfolios combining a ri... View the full answer