deviation of the portfolio falls very slowly after about 40 stocks Lower limit for standard deviation of a portfolio is about 20%= market risk Stand-alone risk= Market risk + Diversifiable risk Market risk is the part of a securities stand-alone risk that cannot be eliminated by diversification Firm-specific‚ or diversifiable‚ risk is the part of a security’s stand-alone risk that can be eliminated by diversification Market risk is measured by a stock’s beta coefficient: Beta is also defined as the
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Corporation is about to launch a new product. Depending on the success of the new product‚ Gladstone may have one of four values next year: $150 million‚ $135 million‚ $95 million‚ and $80 million. These outcomes are all equally likely‚ and this risk is diversifiable. Gladstone will not make any payouts to investors during the year. Suppose the risk-free interest rate is 5% and assume perfect capital markets. a. What is the initial value of Gladstone’s equity without leverage? Now suppose Gladstone has zero-coupon
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Investments Study Guide BOOK Review Figures: 1.1‚ 1.2‚ 1.3‚ 3.7‚ 5.3‚ 5.4‚ 6.1‚ 7.2‚ 8.1‚ 8.3‚ 8.4‚ 8.5 Chapter One Real Assets- assets used to produce goods and services (land‚ buildings‚ etc) Financial Assets- claims on real assets of the income generated (stocks‚ bonds) Fixed Income (Debt) Securities- pay a specified cash flow over a specific period of time (CDs‚ Treasury Bills‚ Treasury securities) Equity- ownership share in a corporation (pay dividends) depend on success of company Derivatives-
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Portfolio Management Case 1: Alex Sharpe’s Portfolio Executive Summary As Alex Sharpe’s consultant‚ we recommend a portfolio of 78% S&P 500 and 22% of R.J Reynolds. This portfolio will generate an annual expected return of 8.86% (significantly higher than the index return 6.29%)‚ while the risk increases by only less than 10%. In Qualitative Analysis‚ we find that tobacco industry tends to move with the market less than the toy industry‚ which indicates that R.J Reynolds can diversity the
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Mutual Fund Analysis Case Study Investor Summary John and Jane Mooney Working for an investment firm I was recently asked by my boss to help advise two of firm’s best clients. The client’s names were John and Jane Mooney. Both John and Jane are in their early 40’s and have no children. John is a fireman for the local fire department while Jane is a professor at the local community college. The Mooney’s annual income is roughly $115‚000. The Mooney’s own their home and are virtually debt free
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Corporate Financial Management Practice Mid-Semester Examination (Answers at back) Disclaimer: This practice exam covers a selection of the types of questions that may be asked in the mid-semester exam‚ however it should not be taken as being exhaustive as to the topics that could be included in the exam. Students should therefore not be surprised if other types of questions appear in the exam. 1. $200 invested today and earning 8 per cent per annum compounded semi-annually will grow
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ZEUS ASSET MANAGEMENT INC. Huy Tu Nguyen 22491465 1. Overview of Zeus Asset Management Inc. Founded in 1968‚ Zeus Asset Management Inc. (ZAM) is an independent‚ money – management company offering services to both institutional and individual clients. ZAM follows a conservative‚ risk-averse‚ quality-oriented investment management to exploit the extra return from long term strategies. In fact‚ the company’s investment philosophy of risk-aversion can be guaranteed by the experienced staff‚ who
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This paper presents a revised portfolio strategy for Delta Airlines‚ Inc. as result of a large cash infusion it recently has received in the amount of $700 million. Delta Airlines‚ Inc. provides schedule air transportation for passengers and cargo throughout the United States and around the world. Delta Airlines has a global route network giving is a presence in every major domestic and international market including airports in Amsterdam‚ Atlanta‚ Cincinnati‚ Detroit‚ Memphis‚ Minneapolis
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1.1 INTRODUCTION AND BACKGROUND OF STUDY Over the years‚ there have been many definitions of insurance but the most accepted definition is that given by ALAN WILLET in 1901. He defined insurance “As the accumulation of reserves for the purpose of contingencies”. Thus it is a business activity wherein some people or parties who are subject to certain risk pay monthly or yearly premium to an insurance company to transfer the burden of such risks. Insurance also may be defined “as a contract whereby
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Case 2B: The Small/Large Anomaly Maastricht University School of Business and Economics Maastricht‚ 15 September 2009 Maastricht University School of Business and Economics Maastricht‚ 15 September 2009 Table of Content Introduction 3 Summary Statistics 4 Spread Portfolio 5 Evaluate the CAPM 6 Conclusion 7 References 8 Introduction The Capital Asset Pricing Model (CAPM) is an equilibrium model that underlies all modern financial theory. It predicts
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