Question
Blue: Portfolio B Orange: Portfolio A Middle Line: Market returns a. Your client asks why you would combine the lower returning portfolio (A) with portfolio
Blue: Portfolio B
Orange: Portfolio A
Middle Line: Market returns
a. Your client asks why you would combine the lower returning portfolio (A) with portfolio (B) in arriving at the optimal risky portfolio. What is your response?
b. Your client believes in the weak form of market efficiency as it relates to security selection. Is Portfolio As performance sufficient justification to prove the semi-strong form of market efficiency? Why or why not?
c. If your client believed in the strong form of market efficiency, what portfolio substitution(s) would you make to your optimal risky portfolio? No calculations are necessary.
d. After meeting with the client, she informs you that she prefers a return higher than that of the optimal risky portfolio. Is this possible and if so how? What does that indicate about your initial assumptions regarding the indifference curve?
e. Portfolio A returned 5.86% p.a. over the evaluation period compared to a 2.57% p.a. for the S&P 500. This equates to a difference or outperformance of 3.29% p.a. According to the CAPM, the annualized alpha of portfolio A is 3.32% p.a. Explain the difference between the two numbers. (Note: Its not due to rounding)
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Make Money Like A Monster 2 Real Estate
Authors: Kaiju Cash
1st Edition
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