Quiz Assignment Example | Topics and Well Written Essays - 500 words - 7

Quiz - Assignment Example This will help out during fluctuation in the price of the securities in the portfolio. If data from the set of securities are gathered and plotted on a graph with annual rate of return on y-axis while standard deviation of the cost of the security on x-axis, there will be a region bounded by a curve sloping up. This curve is referred to as efficient frontier. The first characteristics is that the portfolios that gives the highest return are the one selected, this portfolio are the one that lies above the curve referred to as efficient frontier. Those points found above the efficient frontier gives the best return for the portfolio as opposed to those that are below sometimes referred to as submerged points. The second characteristics of efficient frontier is that it is a curve not s straight line. This is because the return securities in the portfolio are not same each security has its own level of return and risk associated to it (Hirt & Block, 1990). So any point found on this curve is the best alternative or asset to be included in the portfolio. Yes they do. First because they points in the frontier keeps on moving as time progresses the risk level and expected return changes. This will result to the point associated with that security moving upwards if the changes were favorable. Secondly efficient frontier depends on the number of securities in the portfolio, so if securities in a given portfolio are of good number there is a high chance of some points being on top of the efficient frontier. Yes it is possible if the bond has lower coupon rate hence longer period of payment. In bond duration refers to the weighted average period of time required before the actual cash flows starts to be received. The weighted average is not the nominal value of the cash flow but rather the present value. According to (Fabozzi, 2002) investors really need to know the duration for them to know or predict how the market price of bond will be affected by due to