Chapter 07 - Optimal Risky Portfolios CHAPTER 7: OPTIMAL RISKY PORTFOLIOS PROBLEM SETS 1. (a) and (e). 2. (a) and (c). After real estate is added to the portfolio‚ there are four asset classes in the portfolio: stocks‚ bonds‚ cash and real estate. Portfolio variance now includes a variance term for real estate returns and a covariance term for real estate returns with returns for each of the other three asset classes. Therefore‚ portfolio risk is affected by the variance (or standard
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User Ms Julie Ciarlante Course FIN-601-001 - FA 13-14 Test FIN 601 Final Exam Started 12/12/13 7:19 PM Submitted 12/12/13 9:25 PM Status Completed Attempt Score 126 out of 135 points Time Elapsed 2 hours‚ 5 minutes out of 5 hours. Question 1 3 out of 3 points A bond with an annual coupon of $70 and originally sold at par for $1‚000. The current market interest rate (yield to maturity) is 8%. This bond will sell at _______. Assuming no change in market interest rates
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Case Study of Cost of Capital at Ameritrade 1-a How can the CAPM be used to estimate the cost of capital for a real business investment decision? CAPM results can be compared to the best expected rate of return that investor can possibly earn in other investments with similar risks‚ which is the cost of capital. Under the CAPM‚ the market portfolio is a well-diversified‚ efficient portfolio representing the non-diversifiable risk in the economy. Therefore‚ investments have similar risk if they
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Case Study Ontario Teachers’ Pension Plan Patrick Jordan‚ John Schneider‚ David Mundorf‚ Alexandre Champavere‚ and Lezhi Huang Table of Contents Ontario Teachers’ Pension Plan............................... 2 Background .............................................................. 2 Risk Assessment ....................................................... 2 Portfolio Selection Analysis ...................................... 3 Optimal Asset Allocation......................................
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Portfolio construction models The project that we have done based on the Markowitz and Sharp methodologies that allow investors to build an efficient portfolio. An efficient portfolio is defined as the portfolio that maximizes the expected return for a given amount of risk (standard deviation)‚ or the portfolio that minimizes the risk subject to a given expected return. Markowitz method determines the asset allocation that produces the highest expected return for each unit of risk. The calculation
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NEKN82 EMPIRICAL FINANCE LAB 3 Report Done by: Lang‚ Qin 1988-12-05 Low Lihui Valerie 1989-09-24 Q1 Before we evaluate the actual investment performance of the five constructed portfolios for period 1992.02-2008.07‚ we firstly calculate the mean‚ variance and standard deviation of each of the portfolio using Excel. The results are generated as below: Portfolios | Z1 | Z2 | Z3 | Z4 | Z5 | Zm | Mean | 0.008490 | 0.003843 | 0.009980 | 0.000141 | 0.004840 | 0.0066 | Variance |
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I. DEFINITIONS PORTFOLIOS 1. A portfolio is: a. a group of assets‚ such as stocks and bonds‚ held as a collective unit by an investor. b. the expected return on a risky asset. c. the expected return on a collection of risky assets. d. the variance of returns for a risky asset. e. the standard deviation of returns for a collection of risky assets. PORTFOLIO WEIGHTS 2. The percentage of a portfolio’s total value invested in a particular asset is called that
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Definition of the parameters for evaluation: Sharpe Ratio: It is calculated by subtracting the risk-free rate of return (return on government securities) from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. {draw:line} {draw:frame} {draw:frame} Sharpe Ratio = Where rp = Expected portfolio rate of return rf = Risk free rate of return σp = Portfolio standard deviation Since standard deviation is a measure of the associated risk (systematic
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FN2 Module 1 Multiple Choice Questions MULTIPLE CHOICE: Choose the one alternative that best completes the statement or answers the question. a) Which of the following is least likely to increase market efficiency? 1) Governments relax restrictions on foreign investment 2) Corporations disseminate more information to investors 3) More new investors choose to invest in individual stocks on their own rather than invest in mutual funds 4) More stock transactions are conducted online than
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SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT SHARPEN INDEX MODEL By Jissmol George SHARPEN INDEX MODEL • • • • The Sharpe index is a measure in which the performance of portfolio in a given period of time is measured. In Sharpe index‚ three things must be known: the portfolio return‚ the risk free rate of return - use the average return (over the given period of time). the standard deviation of the portfolio – it is measure the systematic risk of the portfolio. The
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