Portfolio Theory .

Running head: PORTFOLIO THEORY
Portfolio Theory
Name of the Student:
Name of the University:
Author’s Note:
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1PORTFOLIO THEORY
Table of Contents
Introduction:....................................................................................................................................3
Question 1:.......................................................................................................................................3
Part A:..........................................................................................................................................3
Requirement i:.........................................................................................................................3
Requirement ii:........................................................................................................................3
Part B:..........................................................................................................................................4
Question 2:.......................................................................................................................................4
Part A:..........................................................................................................................................4
Part B:..........................................................................................................................................5
Question 3:.......................................................................................................................................6
Part A:..........................................................................................................................................6
Question 4:.......................................................................................................................................7
Part A:..........................................................................................................................................7
Requirement i:.........................................................................................................................7
Requirement ii:........................................................................................................................7
Requirement iii:.......................................................................................................................8
Question 5:.......................................................................................................................................8
Requirement i:.............................................................................................................................8

2PORTFOLIO THEORY
Requirement ii:............................................................................................................................9
Requirement iii:...........................................................................................................................9
Question 6:.......................................................................................................................................9
Requirement i:.............................................................................................................................9
Requirement ii:..........................................................................................................................10
Conclusion:....................................................................................................................................11
References:....................................................................................................................................12

3PORTFOLIO THEORY
Introduction:
Portfolio theory could be deemed as a modern theory focusing on the ways through
which the risk-averse investors could form portfolios for maximising or optimising expected
return depending on a provided market risk level. This emphasises that risk is a significant part
of greater reward1. The theory states that an efficient frontier of optimal portfolios could be
developed providing the maximum expected return for a provided risk level. This assignment
would shed light on the various aspects of portfolio theory based on the provided scenarios.
Question 1:
Part A:
Requirement i:
Risk premium could be defined as the excess of risk-free return that an investment is
estimated to yield. The risk premium of an asset is a kind of compensation for the investors
tolerating additional risk in contrast to that of an asset, which is risk-free, in a provided
investment. For instance, the enhanced quality corporate bonds that the established organisations
issue earning bigger profits have lower default risk.
Requirement ii:
The major sources of uncertainty associated with the future payments include the
following:
Unpredictability of future events:
1 M. Capiński and P Kopp, Portfolio theory and risk management. in , Cambridge, Cambridge Univ. Press, 2014.