Why would I hold a zero beta stock in my portfolio? Some Background In class we wondered why you would hold a zero beta stock, that is a stock that has the same expected return as the risk free rate yet has its return is uncertain, but the risk free return is certain. The only way you would in fact hold such a stock is if it gave you something the risk free return did not give you. I said this was because this stock provided diversification, and this example illustrates this point. Before I work
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his 1970 book "Portfolio Theory And Capital Markets." His model starts with the idea that individual investment contains two types of risk: Systematic Risk - These are market risks that cannot be diversified away. Interest rates, recessions and wars are examples of systematic risks. Unsystematic Risk - Also known as "specific risk," this risk is specific to individual stocks and can be diversified away as the investor increases the number of stocks in his or her portfolio. In more technical
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Assumptions of Portfolio Theory • Investors are rational. • Investors are basically risk averse. • Investors wants to maximize the returns from his/her investments for a given level of risk. • Investor portfolio includes all of his/her assets and liabilities. • The relationship between the returns of assets in the portfolio is important since the returns from these investments interact with each other. Risk Aversion • Portfolio Theory assumes investors are basically risk averse. • Risk aversion
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return are strongly correlated. A higher risk usually yields a higher return. Our team observed that within Alex Sharpe’s portfolio, the Reynolds’ fund holds the highest risk (highest standard deviation of 32.45%), as well as the highest return (16.27% in comparison to Hasbro’s return of 11.31%). Although a lower standard deviation (lower risk) is ideal for an investment portfolio, the Reynolds’ fund yields a higher return for the higher associated risk. Furthermore, our team’s data illustrated that
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and money – management company founded in 1968 by Tim Landon and Jerry Schneider, offering services to both institutional and individual clients which is different to some other asset- management firms, therefore the firm has designed a number of portfolios to meet the needs of clients. The firm’s investment philosophy follows a conservative, risk-averse, quality-oriented approach to investment management to exploit the superior return from long term strategies. The company’s investment philosophy
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Risk and Return Tradeoff Memo Analyzing the risk and return tradeoffs associated with Casa Bonita’s portfolio Diversity is an important part of any portfolio; diversity in the industries chosen for investment and in the level of risk undertaken are the two most important factors when considering how to construct a corporate investment portfolio.(3) Casa Bonita is a growing company and it is important that we invest our capital wisely if we are planning to use the gains to fund expansion and
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Capital Asset Pricing Model Capital Asset Pricing Model (CAPM) is used to calculate the projected return on the equity of a single company. CAPM is based on risk free rate, the expected return rate on the market and beta coefficient of a single portfolio and security. Re = Rf + β [E(Rm) - (Rf)] According to the formula, Re represents the Return on Equity, Rf is for the risk-free rate, E(Rm) denoted to expected rate of return on the market, and β is the beta coefficient and E(Rm) - Rf is the difference
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The EMH is in performance vital role in financial economics literature, EMH is recognized technique for calculating the future assessment of the stock price. Usually an asset market is mentioned to be an efficient if the asset price in inquiry must completely reflect on all obtainable information and if, it is correct information that cannot be likely for market to contributors to earn abnormal profit. For calculating the estimate is recognized technique is EMH are three variations: • All historical
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FINANCE Investments and Portfolio Management Team Case Study Analysis Susan Griffin: Formulation of a Long-Term Investment Strategy TEAM X Case Overview Susan Griffin, owner and CEO of Griffin Incorporated, was planning to sell the company. Despite the success of her company, she was 62 years old and wanted to be free of the responsibilities and retire. Working with her bank advisors, indications estimated the sale
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Portfolio Analysis A portfolio is a combination of securities. Portfolio analysis provides a framework by which the investors can identify optimal portfolios from a universe of infinite portfolios. Investors need to estimate the expected return and variance of each security under consideration for inclusion in the portfolio along with all the covariances between securities. With these measures the investors proceed to calculate the expected return and risk of alternative portfolios to evaluate
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