Portfolio Management - Portfolio Management Section 1
| Investor | Expected Standard Deviation | Beta |
| Daniel | 30 | 1.60 |
| David | 25 | 1.80 |
| Diana | 20 | 1.40 |
Given that the expected return for David’s security is 14% and the riskfree rate is 2.5%, what is the expected return for the market?
- Option : B
- Explanation : The expected return for the market can be calculated using the following equation: E (Ri)= Rf+ β (E (Rm) −Rf) 14% = 2.5% + 1.80 (E (Rm) −2.5%) E(Rm)= 8.88%
| Investor | Expected Standard Deviation | Beta |
| Daniel | 30 | 1.60 |
| David | 25 | 1.80 |
| Diana | 20 | 1.40 |
Given that the expected market risk premium is 7.5%, which of the
following investors has the lowest expected return?
- Option : C
- Explanation : Diana will have the lowest expected return because her investment has the lowest beta value. The value of the risk-free rate will not matter here.
| Investor | Expected Standard Deviation | Beta |
| Daniel | 30 | 1.60 |
| David | 25 | 1.80 |
| Diana | 20 | 1.40 |
Given that the expected market return declines, which of the following
investor’s security will have the greatest impact on the expected
return?
- Option : B
- Explanation : The security with the highest beta will be most sensitive to change in the expected market return.
- Option : A
- Explanation : A security is undervalued if the estimated return is higher than the return calculated using CAPM.
*/?>
*/?>
*/?>
*/?>