Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

QUESTION 2 Consider two different portfolios, A and B. Portfolio A includes only stocks from the Abu Dhabi Securities Exchange (ADX), while portfolio B include

image text in transcribed
QUESTION 2 Consider two different portfolios, A and B. Portfolio A includes only stocks from the Abu Dhabi Securities Exchange (ADX), while portfolio B include only stocks from international stock markets but ADX. Explain which portfolio is expected to have lower risk. A. One should have information about average returns and risks for portfolio A and portfolio B and estimate the coefficient of variation in order to assess the riskiness of each portfolio of assets. Since such information is not provided, we are expecting both portfolios having similar risk. B. Portfolio A is expected to have lower risk. This is because in a single market it is expected that the correlation between all stocks is high due to the fact that they all share the same economic and business conditions. In the context of international capital markets, the correlation between the various stocks is not expected to be as high, but due to differences between the poor and rich stock markets, the diversification benefits are not expected to be greater. C. Portfolios A and B are constructed with different assets, one national and one international. However, the economic and business conditions in the global markets are the same. Hence, we are expecting the same risk for both portfolios. D. Portfolio A is expected to have higher risk. This is because an international portfolio of financial assets is exposed to more risks than portfolio A which includes only stocks from ADX, aa very strong market. Portfolios A and B are constructed with different assets, one national and one international. However, the economic and business conditions in the global markets are the same. Hence, we are expecting the same risk for both portfolios. E. Portfolio B is expected to have lower risk. This is because in a single market it is expected that the correlation between all stocks is high due to the fact that they all share the same economic and business conditions. In the context of international capital markets, the correlation between the various stocks is not expected to be as high so, the diversification benefits are greater

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Institutions And Markets

Authors: Jeff Madura

10th International Edition

0538482176, 9780538482172

More Books

Students also viewed these Finance questions

Question

3. Speak respectfully. Use the students name.

Answered: 1 week ago

Question

11.1 Explain the strategic importance of total rewards.

Answered: 1 week ago

Question

11.3 Define pay equity and explain its importance today.

Answered: 1 week ago