Running head: ASSET CLASSES Asset Classes Theora Mcmillan FIN 402- Investment Fundamentals and Portfolio Management University of Phoenix January 16, 2011 Alger Marable Abstract This paper will serve to determine the asset class for Bank of America, a Dow 30 organization and explain how that classification and the current investment environment affect organizational decisions concerning portfolio composition. Asset Classes An asset class is a group of securities that exhibit similar
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Chapter 8 Risk and Rates of Return Answers to End-of-Chapter Questions 8-1 a. No, it is not riskless. The portfolio would be free of default risk and liquidity risk, but inflation could erode the portfolio’s purchasing power. If the actual inflation rate is greater than that expected, interest rates in general will rise to incorporate a larger inflation premium (IP) and—as we saw in Chapter 6—the value of the portfolio would decline. b. No, you would be subject to reinvestment risk. You
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CHAPTER 1—THE INVESTMENT SETTING TRUE/FALSE 1. The rate of exchange between certain future dollars and certain current dollars is known as the pure rate of interest. ANS: T PTS: 1 2. An investment is the current commitment of dollars over time to derive future payments to compensate the investor for the time funds are committed, the expected rate of inflation and the uncertainty of future payments. ANS: T PTS: 1 3. The holding period return (HPR) is equal to the holding period
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Problem Set 1. Stocks offer an expected rate of return of 18%, with a standard deviation of 22%. Gold offers an expected return of 10% with a standard deviation of 30%. a. In light of the apparent inferiority of gold with respect to both mean return and volatility, would anyone hold gold? If so, demonstrate graphically why one would do so. Explain. Answer: Even though it seems that gold is dominated by stocks, gold might still be an attractive asset to hold as a part of a portfolio.
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CHAPTER 6: RISK AVERSION AND CAPITAL ALLOCATION TO RISKY ASSETS PROBLEM SETS 1. (e) 2. (b) A higher borrowing rate is a consequence of the risk of the borrowers’ default. In perfect markets with no additional cost of default, this increment would equal the value of the borrower’s option to default, and the Sharpe measure, with appropriate treatment of the default option, would be the same. However, in reality there are costs to default so that this part of the increment lowers
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Stock Garnett Incorporated earned $2.60 per share and paid a dividend of $1.90 per share in the year just ended. Earnings and dividends per share are expected to grow at a rate of 5 percent per year in the future. Determine the value of the stock: Dividend * (1 + growth) / (overall return – growth) a. If the required rate of return is 12 percent.: 1.90 * (1.05 / 0.07) = $28.50 b. If the required rate of return is 15 percent. 1.90 * (1.05 / 0.10) = $19.95 c. Given your answers to Parts
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client prefers a standard deviation of at most 18%, then: y = 18/28 = 0.6429 = 64.29% invested in the risky portfolio c. E(rC) = 8 + 10y = 8 + (0.6429 x 10) = 8 + 6.429 = 14.429% Question 3 Refer to Question 2. Your client’s degree of risk aversion is A=3.5 a. What proportion, y, of the total investment should be invested in your fund? b. What is the expected value and standard deviation of the rate of return on your client’s optimized portfolio? Answer a. y* E(rP ) rf Aσ 2
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Jönköping International Business School Jönköping University B eh avioral F i nance Investors’ Rationality Bachelor Thesis within Finance Authors: Bernéus, Hannes Sandberg, Carl Wahlbeck, David Tutor: Jönköping Österlund, Urban December, 2008 Acknowledgement We would like to thank our tutor Mr. Urban Österlund for his support and guidance. We are also grateful for all valuable comments and insights from our fellow students during seminar sessions. We would also like to present
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1. Log on to finance.yahoo.com and enter the ticker symbol RRD in the Get Quotes box to find information about R.R. Donnelley & Sons. a. Click on Profile. What is Donnelly's main line of business? R.R. Donnelley & Sons Company provides integrated communication solutions to private and public sectors worldwide. It operates through Publishing and Retail Services, Variable Print, Strategic Services, and International segments. b. Now go to Key Statistics. How many shares of the company's stock
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Financial Instruments................................................................................... 4 Chapter Three: How Securities Are Traded........................................................................ 8 Chapter Six: Risk and risk aversion.................................................................................. 12 Chapter Seven: Capital Allocation between the Risky asset and the risk-free Asset ....... 17 Chapter Eight: Optimal Risky Portfolios:.........................
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