Portfolio Management: Portfolio Concepts

Question 1

Average Cov of port approaches total average Cov when…

Answer 1

The number of assets in the portfolio are large.

Question 2

Minimum Variance Portfolio

Answer 2

Portfolio that has the smallest variance among portfolios with identical expected returns.

Question 3

Global Minimum Variance Portfolio

Answer 3

The portfolio that sits to the furthest left on the efficient frontier. All portfolios below are inefficient and all portfolios above may be efficient on the CAL.

Question 4

Sharpe Ratio (formula and slope of what?)

Answer 4

1. Sharpe ratio = (ErP - Rf%) / SdP
2. Sharpe ratio = Slope of Capital Markets Line

Question 5

Expected Return of Portfolio

Answer 5

ErP = W₁(Er₁) + W₂(Er₂)…

Question 6

Market Portfolio has Highest Possible Sharpe Ratio, Therefore….

Answer 6

All other portfolios must have a sharpe ratio below the market’s sharpe ratio.

Question 7

A Factor Portfolio (definition)

Answer 7

A portfolio with a beta of 1 to a single factor and a beta of zero to other factors. Will have more active factor risk than a tracking portfolio.

Question 8

Y-Axis Intercept for Multifactor Model

Answer 8

= Expected value of multifactor model. The start calculation is the intercept because multifactor models are based on sensitivity to surprises.