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What the risk-free asset vs a portfolio on the markowitz

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Reference no: EM132501014

Question a. Explain why the set of points between the risk-free asset and a portfolio on the Markowitz efficient frontier is a straight line.

Question b. Draw a graph that shows what happens to the Markowitz efficient frontier when you combine a risk free asset with alternative risky asset portfolios on the Markowitz efficient frontier. Explain this graph.

Question c. Discuss and justify a measure of diversification for a portfolio in terms of capital market theory.

Question d. What changes would you expect in the standard deviation for a portfolio of between 4 and 10 stocks, between 10 and 20 stocks, and between 50 and 100 stocks?

Question e. Capital market theory divides the variance of returns for a security into systematic variance and unsystematic or unique variance. Describe each of these terms.

Question f. The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for an individual security. Which is the relevant risk variable and why is it relevant? Why is the other risk variable not relevant?

Reference no: EM132501014

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