Important Points for IC 89 - Management Accounting Exam
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The Portfolio theories provide guidelines to the investors regarding the selection of appropriate securities that will provide the highest expected rate of return for any given degree of risk or that will expose the investor to a degree of risk for a given expected rate of return.
Traditional approach is mainly concerned with the investors profile, definition of portfolio objectives with reference to maximising investors wealth which is subject to risk, investment strategy, diversification and selection of individual investment.
As per Random walk theory, the behavior of stock market prices is unpredictable and there is no relationship between the present prices of the shares and their future prices.
The basic premise of Efficient Market Theory is that all market participants receive and act on all the relevant information as soon as it becomes available in the stock market.
As per Markowitz model of risk-return optimisation theory, the investors are mainly concerned with two propoerties of an asset: Risk and Return and by diversification of portfolio, there is Risk-Return trade-off.
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