FINS2624 PORTFOLIO MANAGEMENT Week 6 CAPM: The covariance of an assets returns with the market and the required return of the asset. Assumptions: * Investors are price takers * Investors have identical investment horizons * Perfect capital markets * Investors are rational mean-variance optimizers β: Measures how much risk an asset contributes in the market portfolio. * β > 1 asset contributes more risk than the average asset * β < 1 asset contributes less risk
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frameworks in asset pricing and other fields of finance. For asset pricing‚ the concepts of risk and return‚ and state prices will be introduced as a stepping stone towards the discussions of more advanced topics including the Capital Asset Pricing Model (CAPM)‚ the Arbitrage Pricing Theory (APT)‚ and other more recent asset pricing models. Other topics in finance such as options and behavior finance may also be covered on an optional basis. Besides the theoretical frameworks‚ recent developments in empirical
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NIKE CASE STUDY 1. Why is it important to estimate a firm’s cost of capital? What does it represent? Is the WACC set by investors or by managers? Weighted average cost of capital or WACC represents the overall cost of capital in the company. It takes into considerations cost of debt and cost of equity. As company’s value can grow by increasing its assets that could be financed either be debt or equity and cost of capital shows how much it costs to do that. Cost of capital is a very important component
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1. What major requirements do client expect from their portfolio managers? We have two major requirements of a Portfolio Manager: 1. The ability to derive above average returns for a given risk class (large risk-adjusted returns); and 2. The ability to completely diversify the portfolio to eliminate all unsystematic risk. The client expect from their portfolio managers are to help them manage their money in less time. Most of the client requires a portfolio manager who can preserve
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Section A Personal investment in the UK – is it a science or a matter of good fortune? Good morning ladies and gentlemen‚ My names Moaweya Alksibati and my student ID: u1268623 Today I am going to talk about the personal investment in the UK and whether the success of this investment can be attributed to Luck of Science. I would like to welcome Lord Nigel Lawson‚ DR. John Hughman and Justin Urquhart for attending today and I hope you enjoy the topic I am talking about. I will try
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Chart 4.5 Scatter Plot of MFUND ’s Returns and GSE-ASI Chart 4.6 Comparative of Investment Returns (2005-2010) LIST OF ACRONYMS AND ABBREVIATIONS APT Arbitrage Pricing Theory AMF Anidaso Mutual Fund AUM Asset Under Management CAPM Capital Asset Pricing Model CGT Capital Gain Tax CIS Collective
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r is constant‚ the price of the asset is given by the present value formula Pt = E (Ct+1 ) E (Ct+2 ) E (Ct+3 ) + + + ... 2 1+r (1 + r) (1 + r)3 The discount rate r is the same as the expected return of the asset‚ and is given by a model such as CAPM or APT (b) Similarly‚ consider a project involving a series of (net) cash flows
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QUESTION BANKSECURITY ANALYSIS & PORTFOLIO MANAGEMENTThird SemesterMBA – Master of Business AdministrationUniversity of MadrasPrepared by: N Rakesh‚ Chennai Investment / Financial system Define investment. What are its dimensions. Describe the different objectives of financial investment What are the characteristics of investment. Explain briefly the expectations of individual investors Discuss the problems faced by the Indian investors. Explain the function of Financial
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Mean-Variance Analysis Mean-variance portfolio theory is based on the idea that the value of investment opportunities can be meaningfully measured in terms of mean return and variance of return. Markowitz called this approach to portfolio formation mean-variance analysis. Mean-variance analysis is based on the following assumptions: 1. All investors are risk averse; they prefer less risk to more for the same level of expected return. 2. Expected returns for all assets are known. 3. The
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Question 6 A) The return data of the four funds is given below. It is clear that DFA has the best risk adjusted returns as captured by the Sharpe ratio. It has the disproportionately high returns for the risk taken. So‚ in order of performance‚ the funds are enlisted below: 1) DFA 2) Diversified 3) T. Rowe Price 4) Goldman B) Using CAPM I gave regressed excess stock return with excess market returns to isolate Alpha. R (Goldman)= 1.167 (Rm – Rf) - .00705 Significance:
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