BUSFP3062-Assesssment8-1.docx - Estimating Risk and Return...

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Estimating Risk and Return 1/19/21
1. Expected Return is considered forward looking because it represents the return investors can anticipate receiving at a future date in time based on known historical returns. Challenges that arise in using expected return are that it fails to account for risk. Two investments can show similar rates of return based on historical performance, however, one can have substantially higher risk associated with the investment (Chen, 2021). 2. Allocations between the risk-free security and market portfolio can determine the level of market risk due to overall beta value. Risk-free securities essentially have a value of zero beta. Since the market has a beta value of 1, diversification between market equities and risk-free securities will generate an average value that will reflect volatility in respect to market growth or

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