FIN320- “Risk and Return” and “Diversification”

As a financial manager, determine at what point the risk of an investments outweighs the potential reward. Provide support for your rationale. Explain whether or not you believe an investor should be rewarded a risk premium for taking on risk. Support your answer with an example.

Justify whether the standard deviation or covariance is the most significant measurement when adding a risky asset to an already highly risky portfolio. Provide support for your justification.

An investor ponders various allocations to the optimal risky portfolio and risk-free T-bills to construct his complete portfolio. Predict two ways that the Sharpe ratio of the complete portfolio could be affected by this choice. Support your prediction with examples.

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