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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Investment Choices By Karl Preissner, Xavier University Business Stats 500 Project Winter 2011 Problem Description This paper concerns a simple question, “What’s the best way to invest my money when presented with 13 alternative opportunities?” In this case, we’ll assume our investment goal is to maximize return while simultaneously minimizing the risk of loss. Since we cannot invest backwards in time, we need to develop an expectation for the future performance of our opportunities in
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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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DEUR=dP0dr=-1(1+r)*t=1Tt*C(1+r)t Duration of the Portfolio DPortfolioMAC= DBond1MAC*P0Bond1P0Portfolio+DBond2MAC*P0Bond2P0Portfolio * The higher Duration the more sensitive is the Bond to changes of interest rate Markowitz Portfolio theory: Expected Return: μ=1ni=1nri Variance: σ2=1(n-1)i=1n(ri-μ)2 Standard Error: Err=σn Covariance: σAB=1(n-1)i=1n(riA-μA)(riB-μB) Correlation coefficient: ρAB=σABσAσB Markowitz Portfolio Theory: σ2=a2σA2+b2σB2+2abσAB μ=arA+(1-a)rB Portfolio of identical Stocks: σPortfolio=1nσOne
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the company has asked me why there is a need for an internal control system when controls are in place with insurance and portfolio approaches. Insurance Approach A company will purchase insurance to protect their assets. The owner of a company will purchase liability insurance to protect his income, home, and other personal items of worth. The company will do a risk analysis to determine the most significant risks of the company. Then the company will purchase insurance to mitigate these risks
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A. Sears FIN/402 April 13, 2015 Richard E. Smith Risk and Tradeoff Memo To: Rainier Ekstrom From: Joe A. Sears Subject: Portfolio Selection and Investment Strategy According to risk and yield as well as the detailed assessment, the decision to select four investments was of high regards, in addition to making a choice to minimize risk, in addition portfolio diversification, which assisted in the reduced risks. In order to assist in making the correct decisions there are particular pieces
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Alex Sharpe’s Portfolio 1. Returns and Risk Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest? S&P: Monthly average return=0.57% Annual return= 6.89% Annual SD= 12.477% (monthly SD 3.60* 3.46 (square of 12)) Reynolds: Monthly average return= 1.87% Annual return= 1.87% * 12= 22.50% Annual SD: 32.446% (monthly SD 9.37* 3.46 (square of
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Chapter 06 Efficient Diversification 1. So long as the correlation coefficient is below 1.0, the portfolio will benefit from diversification because returns on component securities will not move in perfect lockstep. The portfolio standard deviation will be less than a weighted average of the standard deviations of the component securities. 2. The covariance with the other assets is more important. Diversification is accomplished via correlation with other assets. Covariance helps determine
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management focusing on quantitative models applied to equities and bonds (with emphasis on mortgage-backed securities). The quantitative models discussed are asset allocation models and portfolio construction models that include optimization models (mean-variance framework and extensions such as robust portfolio optimization), multi-factor risk models, risk control models, and transaction cost forecasting models. Return attribution models for performance evaluation will be covered. Model risk and
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Active Portfolio Management: Country vs. Sector Characteristics Executive Summary This project sets out to invest between 7bn and 9bn Euros for a large pension fund in European equities, chosen from the MSCI Europe Index, which also serves as the benchmark to measure performance against. Two portfolios need to be created, one to reflect asset allocation focussed on countries and the other on sectors, with the number of assets in each portfolio being no more than 150. Both portfolios must be actively
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