What is the role of portfolio diversification?

What is the role of portfolio diversification?

Is to reduce the variance of the portfolio by adding additional assets into the portfolio.

What is Risk adjusted discount rate?

What is Risk adjusted discount rate?

Is an estimation of the present value of cash for high risk investment.

3 phases in formulation of Markowitz model

3 phases in formulation of Markowitz model

1.     Mean variance analysis

2.     Expected rate of return

3.     Standard deviation

Four principles of Normative/Optimization models:

Four principles of Normative/Optimization models:

1.     Variables and parameters

2.     Mathematical relationships between variables.

3.     Constraints

4.     Objective

What is short selling? When is it profitable?

What is short selling? When is it profitable?

Is the process of selling borrowed assets with the intention of buying identical assets to return them to the lender.

It is profitable if the price of the asset declines at a later date to return to the lender.

What is Unsystematic risk?

What is Unsystematic risk?

Is the variability of the security caused by external factors (factors outside the company)

What is Systematic risk?

Q:What is Systematic risk?

It is the variability of the securities rates of return resulting from factors that affects all shares in market to a greater/lesser extent.