allocation program that currently includes only stocks, bonds, and cash alternatives (risk-free-money market investments), which of the properties of real estate returns affect portfolio risk? Explain. a. Standard Deviation b. Expected Return c. Correlation with the returns of other assets (a) and (c). The portfolio risk (standard deviation) calculation now includes the variance of real estate returns and correlation between real estate and stocks the correlation between real estate
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Problem 1: Marketing selection problem Hua Ann is running for reelection as mayor of a small town in Alabama. Khurai Jum, Ann’s campaign manager during this election, is planning the marketing campaign, and there is some stiff competition. Jum has selected four ways to advertise: telvevision ads, radio ads, billboards, and newspaper ads. The costs of these, the audience reached by each type of ad, and the maximum number of each is shown in the following table TYPE OF AD | COST PER AD | AUDIENCE
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original investment. Efficient frontier: The set of portfolios that have the highest expected return for any given level of risk is known as the efficient frontier. Investors aim to find the efficient frontier which represents portfolios with highest return for a given level of risk. Optimal portfolio: The optimal portfolio is the point of tangency between the efficient set and the invester’s risk-return indifference curve Market portfolio: a portfolio made up of all the assets in the economy with weights
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attractive asset to hold as a part of a portfolio. If the correlation between gold and stocks is sufficiently low, gold will be held as a component in a portfolio, specifically, the optimal tangency portfolio. Efficient frontier Efficient frontier b. Given the data above, re-answer part (a) with the additional assumption that the correlation coefficient between gold and stocks equals 1.0. Draw a graph illustrating why one would or would not hold gold in one’s portfolio. Could this set of assumptions
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M.I.T. Sloan School of Management Spring 1999 15.415 First Half Summary Present Values • Basic Idea: We should discount future cash flows. The appropriate discount rate is the opportunity cost of capital. • Net Present Value: The net present value of a stream of yearly cash flows is N P V = C0 + C1 C2 Cn + + ··· + , 2 1 + r1 (1 + r2 ) (1 + rn )n where rn is the n year discount rate. • Monthly Rate: The monthly rate, x, is x = (1 + EAR) 12 − 1, where EAR is the effective annual rate. The EAR
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W14232 INVESTMENTS: DELINEATING AN EFFICIENT PORTFOLIO Upasana Mitra and M. Kannadhasan wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
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firm-specific risk e. either firm-specific or market risk 1. a and e 2. a and c The portfolio risk is calculated through the standard deviation of the portfolio. It includes the variance of the real estate, the correlation/covariance between real estate and stocks, the correlation/covariance between real estate and bonds. 3. Only a is valid. 1. Valid. Since it is the minimum variance portfolio of risky securities, its variance must be the lowest than those of all other securities.
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The averaging out of independent risks in a large portfolio is called diversification. The principle of diversification is used routinely in the insurance industry. In this paper I will talk about two different types of home insurance and talk about the different risks associated with each. Discussion A portfolio is used to describe a collection of securities. In finance, the risk of an individual security differs from the risk of a portfolio composed of similar securities. In order to help
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FIN 6275 (Part I) Investment Analysis and Global Portfolio Management Spring 2015 Homework 2: Portfolio Evaluation This homework will assess the performance of your portfolio that you created on Bloomberg at the beginning of class. I. Portfolio: 1. Provide a print out of the portfolio you formed at the beginning of the semester. Hint: Go to Bloomberg and type PRTU. Then choose your portfolio by clicking on it: print and provide that screen which lists what you
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Assignment 3 1. Design a multifactor model with at least 2 factors besides the market factor, and answer the following questions. a) What makes your choice of factor a “factor” in multifactor model? b) Does the factor of your choice co-move with the market factor? If yes, should you include it along with the market factor? c) Describe how the stock return would be affected when the factor of your choice changes. d) Describe a scenario where one can benefit from trading
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