NRP : 5031211090

Grade: Name : Aqsha Naufaldy I.P

Grade :

Assignment II, Management Finance

1. What is Risk Profile? Can you elaborate more for its category?
2. Describe what is meant by systematic and unsystematic risk. How is this distinction related to an
investment’s decision?
3. What do you know about Risk and Return trade-off? How this trade off can support your
investment decision?
4. On December 24, 2007, the common stock of Google Inc. (GOOG) was trading for $700.73. One
year later the shares sold for only $298.02. Google has never paid a common stock dividend. What
rate of return would you have earned on your investment had you purchased the shares on
December 24, 2007?
5. The table below provides information of two Portfolio Investment (A & B), giving the stated
probability and rate of return, please calculate:
a. Risk (standard deviation) of each portfolio
b. Expected return of each portfolio
c. Which portfolio is better?
Portfolio A Portfolio B
Probability Return Probability Return
0.20 -2% 0.10 5%
0.50 19% 0.30 7%
0.30 25% 0.40 12%

6. Please answer these following questions:

a. What do you know about Correlation Coefficient? Please Elaborate
b. What happened if between two stocks in a portfolio the Coefficient Correlation Graphic moves
into different direction?
7. What do you know about CAPM (Capital Asset pricing Model)?
8. What is the reason behind putting a beta (systematic risk) in the CAPM’s equation?
9. Consider a portfolio that is comprised of four investments with betas equal to 2.50, 0.50,
3.40 and 1.30 respectively. If you invest equal amount in each investment, what will be the beta for
the portfolio?
10. Compute the expected rate of return for Intel common stock, which has a 1.2 beta. The risk-free
rate is 3.5 percent, and the market portfolio (composed of New York Stock Exchange stocks) has
an expected return of 16 percent.

Answer
1. The investor's risk profile is a big part of how to put together a good portfolio. Each person's risk
profile is different because of the many things that affect how willing they are to take risks.
Some of these things are your personality, how you feel about losing money, how long you plan
to keep your investments, your age, and your financial resources. Your financial advisor can help
you figure out what your risk profile is. So, they can figure out the best way to divide your
portfolio between different types of assets.
2. Compared to unsystematic risk, which only affects one business or sector, systematic risk affects
the whole market. Systematic risk is the risk of a portfolio of investments that isn't caused by any
one investment but by the market.
3. The risk-return trade-off says that investors should want a higher rate of return if they are willing
to take on more risk. So, less money will go into investments that are pretty safe, like corporate
or government bonds with an AA rating.
4. 315.24 + 0 – (669.23/669.23) =−0.5289511827025089=−52.9%

5.
a. A= 0.15275252316519
B= 0.12472191289246
b. Expected return rate of portfolio A = 17.00%
Expected return rate of portfolio B = 7.50%
c. Protofolio B
6.
a. The correlation coefficient shows how two variables are linked in a straight line. Its
value can be anywhere from -1 to 1. A correlation value of 1 means that there is a perfect
negative or inverse correlation, which means that when one series goes up, the other
series goes down, and vice versa. If the correlation coefficient is 1, the connection is
strong and clear. If the correlation coefficient is 0, there isn't a linear relationship
between the two things.
b. When a portfolio has two stocks with a high coefficient of correlation graph, it means
that the prices of those two stocks move together a lot. When price changes happen at
the same time, the correlation is +1, and when they don't, it is -1.
7. The Capital Asset Pricing Model (CAPM) is a pricing strategy that can predict how much money
another high-value, high-risk asset might make in the future. The Capital Asset Pricing Model
(CAPM) is a pricing approach model that can estimate how much a high-risk investment is likely
to make back. Investors can get a rough idea of how their most important assets will do in the
future by using the Capital Asset Pricing Model.
8. In the CAPM equilibrium model, beta values strongly influence asset returns (systematic risk).
Investors like stocks with strong betas and returns. The beta-return relationship can be used to
compute the risk-free rate of return and risk premium for securities I. Investors must be offered a
minimum rate of return to invest.
9. When the amount of 100 is used as the investment, the result for the β is equal to zero.
10. Intel common stock has an estimated ROI of 18.5%.