- 15 Marks
FM – Nov 2017 – L3 – Q7 – Portfolio Management
Evaluate investment risk in different portfolio scenarios and explain the implications of beta and alpha values for KT Plc’s equity.
Question
a. In the context of the selection and holding of investments, discuss each of the following scenarios:
i. An investor holding only one security needs to be concerned with the unsystematic risk of that security. (3 Marks)
ii. However, an investor who holds a number of securities should take account of total risk. (3 Marks)
iii. An investor should never add to a portfolio an investment that yields a return less than the market rate of return. (3 Marks)
b. The equity beta of KT Plc. is 1.2 and the equity alpha is 1.4. Explain the meaning and significance of these values to the company. (6 Marks)
(Total 15 Marks)
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