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Troy University Risk and Return Probability Outcome Questions

Troy University Risk and Return Probability Outcome Questions

Troy University Risk and Return Probability Outcome Questions

Description

Please complete the attached assignment after you watch the risk & return video.

https://sorrell.mediasite.com/mediasite/Play/6793fb12a8554021bfa47f4192818c1c1d

this is vedio link.

Part I (Based on the video): Fully watch the video and answer the following questions.

Question 1: According to the video, how do we define risk?

Question 2: According to the video, how would the risk of a portfolio consisting of stocks from a variety of economic sectors compare to one consisting of stocks from just one sector? What is the technical finance term for this concept?

Question 3: According to the video, what is the difference between std. dev. and beta in terms of measuring risk?

Question 4: According to the video, what are some caveats associated with CAPM?

Question 5: According to the video, what is the difference between systematic and unsystematic risk? How is each type of risk impacted by holding a well-diversified portfolio?

Part II

Question 1: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .8, -1.3, .95, 1.2 and 1.4. The risk-free return is 3% and the market return is 7%.

  1. Compute the beta of the portfolio.
  2. Compute the required return of the portfolio.

Question 2: You are given the following probability distribution for a stock:

Probability Outcome

.5 -6%

.5 18%

  1. A) Compute the expected return.
  2. B) Compute the standard deviation.
  3. C) Compute the coefficient of variation.

Part III

Question 1: What is the rationale for the positive correlation between risk and expected return?

Question 2: Why is it possible to eliminate unsystematic risk in a well-diversified portfolio? Likewise, why is it not possible to eliminate systematic risk?

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