You are required to analyze three portfolios for 2019. The current yield of the government bond is 2%, and market return premium is 3%. The following table is extracted from the market.

	Portfolio A	Portfolio B	Portfolio C
Beta	0.6	1.2	1.8
Standard deviation	12%	15%	17%
Opening price at the beginning of 2019	$1.95	$33.12	$17.55
Closing price at the end of 2019	$2.03	$34.97	$18.65
CAPM return	3.80%	5.60%	7.40%
Actual return	4.10%	5.59%	6.27%
Sharpe ratio	17.50%	23.93%	25.12%
Treynor ratio	3.50%	2.99%	2.37%
Jensen	0.30%	0%	-1.13%

Questions:

a. If you are new to the market, which portfolio is preferred? Please explain. (5 marks)

b. If you would like to add additional portfolio to your existing investment, which portfolio is preferred? Please explain. (5 marks)

Answer rating: 100% (QA)

Portfolio A Portfolio B Portfolio C Beta 06 12 18 Standard deviation 12 15 17 Opening price at the beginning of 2019 195 3312 1755 Closing price at th... View the full answer