Group Assignment Application of Portfolio Theory Semester 2, 2013 Total Marks: 40 Percentage Weighting: 20 % Investment Guidelines You are required to construct an Equity Investment Portfolio with the following specifications: Market: Australia Portfolio Size: $1 Million Portfolio Composition: 4 assets; must be shares of companies listed on the ASX Asset Allocation: Direct Investment in equities Time Horizon: 5 years commencing January 1st, 2008 to January 1st
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Understanding the Concepts Freddie Bailey FIN 100 Professor John Underwood May 27, 2012 Identify the components of a stock’s realized return. A realized return is the amount of actual gain that is made on the value of a portfolio over a specific evaluation period. The components of a stock are realized return is dividends, distributions, and share price appreciation. Dividends play a very important role in stock realized dividends may be in the form of cash, stock or property
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• This chapter sets forth the principles of modern portfolio theory. • The expected return and variance on a portfolio of two securities A and B are given by • By varying wA, one can trace out the efficient set of portfolios. We graphed the efficient set for the two-asset case as a curve, pointing out that the degree of curvature reflects the diversification effect: the lower the correlation between the two securities, the greater the diversification. • The same general shape holds
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Cheryl Mew FINS2624 – Portfolio Management Semester 1, 2011 L ECTURE 1 – B OND PRICING W HAT IS A BOND? A bond is a claim on some fixed future cash flows. A commonwealth government bond (CGB) is a bond which pays semi-annual coupons, in which the maturity date/ coupon payment date is on the 15th of every month. A zero coupon bond is a bond with no coupons. The important information of a bond: 1. 2. 3. 4. 5. 6. Transaction date: T Settlement date:T+2 Coupon payment dates
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risk aversion for investors Textbook Example: Basic Food’s Price up to $150 from $100 Sale.com Price down to $75 from 100. Difference in return, 20%-10%= Risk Premium Risk in Portfolio Context Expected return on portfolio=Weighted expected return=rp=i=1nwiri Portfolio Risk Stocks can be combined into portfolios which then become less risky to riskless depending on the correlation of the assets. Stocks with a ρ=-1 are perfectly negatively correlated. The inverse is positively correlated.
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security’s non-diversifiable risk and diversifiable risk is called total risk. Systematic risk is beyond the control of shareholders and cannot be alleviated to a large extent. Dissimilarity to this, the unsystematic risk can be alleviated through portfolio diversification. It is a risk that can be avoided and the market does not pay for taking such risk. Explain why the total risk of a
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regarding the market portfolio? A) It includes all publicly traded financial assets. B) It lies on the efficient frontier. C) All securities in the market portfolio are held in proportion to their market values. D) It is the tangency point between the capital market line and the indifference curve. E) All of the above are true. Feedback: D – The market portfolio includes all publicly traded financial assets, lies on the efficient frontier, and all securities in the market portfolio are held in proportion
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realized return is the amount of actual gains that is made on the value of a portfolio over a specific evaluation period. This takes into consideration any earnings generated by each of the assets contained in the portfolio, as well as any losses that were incurred as a result of a shift in the value of the individual assets. It is possible to identify the realized return associated with each asset that is held in the portfolio. Components of realized return are expected return, changes in expectations
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asset held in isolation, risk is measured with the probability distribution and its associated statistics: the mean, the standard deviation, and the coefficient of variation. The concept of diversification is examined by measuring the risk of a portfolio of assets that are perfectly positively correlated, perfectly negatively correlated, and those that are uncorrelated. Next, the chapter looks at international diversification and its effect on risk. The Capital Asset Pricing Model (CAPM) is then
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China's State Capitalism Trap The current international financial economic issue being witnessed is state capitalism. This is a situation where the government owns most of the profit generating enterprises, controlling the shares, acts as a large capitalist and principal shareholder. State capitalism is evident in China, and it is escalating as a threat to its economic growth. China’s powerful companies like, China Mobile, Sinopec, and PetroChina are largely controlled by the state. According
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