Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Section B Consider following portfolio: Expected Return Standard Derivation Stock W 16%p.a. 30%p.a. Portfolio Industry Weight (50%) Financial (30%) Real Estate (10%) Hospitality (10%) Utilities
Section B Consider following portfolio: Expected Return Standard Derivation Stock W 16%p.a. 30%p.a. Portfolio Industry Weight (50%) Financial (30%) Real Estate (10%) Hospitality (10%) Utilities Stock X 18% p.a. 25%p.a. Stock Y 12% p.a. 15%p.a. Stock Z 7% p.a. 5%p.a. (1) Calculate the expected return of above portfolio. (2 marks) (ii) Explain the purpose of diversification? Is it possible to diversify away all the risk? (2 marks) (iii) The expected return of Stock X (18%p.a.) is higher than that of Stock W (16%p.a.), while the Standard deviation of Stock X (25%p.a.) is less than that of Stock W (30%p.a.). Does it necessarily violate the risk-return tradeoff principle? Justify your answer. (4 marks) (iv) The portfolio standard derivation would most likely higher than, equal to or lower than 24.5%p.a.? Justify your answer with appropriate assumption
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started