Equity Risk Premium provides a much clearer way of understanding returns of equities as an asset class, leading to a better ability to forecast and manage risk, thus resulting in better portfolio construction. For example, if investors can objectively quantify the relative returns on stocks, bonds, and cash through risk premia, they can make better decisions on how to allocate their money across these three asset classes. If the equity premium is high, investors should allocate a larger portion
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Journal of APPLIED CORPORATE FINANCE A MO RG A N S TA N L E Y P U B L I C AT I O N In This Issue: Market Efficiency and Risk Management The Global Financial Crisis and the Efficient Market Hypothesis: What Have We Learned? Contingent Capital vs. Contingent Reverse Convertibles for Banks and Insurance Companies International Insurance Society Roundtable on Risk Management After the Crisis 8 Ray Ball, University of Chicago 17 Christopher L. Culp, Compass Lexecon and University of
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You are a risk averse investor who is considering investing in one of two economies. The expected return and volatility of all stocks in both economies is the same. In the first economy, all stocks move together - in good times all prices rise together and in bad times they all fall together. In the second economy, stock returns are independent-one stock increasing in price has no effect on the prices of other stocks. Which economy would you choose to invest in? Please explain. A risk averse investor
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Case 2: Harris Seafood Finance 380: Cases in Financial Decision Making Bojan Balaban, Tijo Jose, Nathan Liu NPV CALCULATIONS Charlie Harris is debating whether or not he should make an investment in the shrimp processing plant. We have concluded that he should make the investment in the processing plant if net present value (NPV) is positive. The NPV is calculated as: NPV= PV(benefits) – PV(cost) The goal here is to create value. Mr. Harris should only invest if the NPV is positive
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Portfolio Performance | Given Return 6% Monthly | | Max Θ No SS | Max Θ with SS | Min Risk SS | Min Risk No SS | Max Θ No SS | Max Θ with SS | Min Risk SS | Min Risk No SS | Portfolio Return (μ) | 0.8500 | 1.0125 | 0.4102 | 0.4371 | 0.7200 | 0.7200 | 0.7200 | 0.7200 | Rf | 0.0573 | 0.0573 | 0.0573 | 0.0573 | 0.0573 | 0.0573 | 0.0573 | 0.0573 | σ portfolio | 0.3294 | 0.1709 | 0.1038 | 0.1060 | 0.1253 | 0.1251 | 0.1251 | 0.1253 | Market Return | 0.1157 | 0.1157 | 0.1157 | 0.1157 | 0.1157
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Thoughts on Smart Beta Chao Liu May 22 2014 The two articles in FT introduce the recent popular investment strategy: smart beta. Smart beta concept is growing popularity across the world because it has allegedly been providing investors risk-adjust excess return. Some consider smart beta approach as a strategy lies between traditional active management in which the fund managers actively pick stocks for their portfolios, and the passive management in which the investor simply replicate the market
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investment advisory firm founded as Basic Economic Appraisals in 1934. As of March 31, 1992, the firm manages $15.4 billion, representing over 164 institutional clients. BEA’s investment philosophy emphasizes return enhancement as well as risk control. BEA has been consistently earning returns in excess of the index averaging 80 basis points per annum by using enhanced equity index funds and enhanced cash strategies with various arbitrage-like techniques. BEA’s new enhanced index client is a Luxembourg
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Financial management * Finance:- Finance may be defined as that administrative area which is concerned with arrangement of cash and credit effectively. * Business finance:- Business finance is the process of determining the required amount of fund, finding available sources of fund, calculating the nominal and effective cost of each sources of fund, conservating the collected funds properly and allocate the optimally in order to achieve the goal of an organization or a business firm.
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Problem Introduction ,There are several areas can be considered when understanding the risk of an investment. In this exercise, as a risk-averse investor, each of the expected rate of return and volatility of the stock for both of the economies is the same. However, for economy number one, all the stocks move together. For economy number two, the stock returns are independent of each other. Which is the best investment? Economy One In the first economy, all stock move
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Text Problem Sets - Week Two Vaughan Thompson FIN/571: Corporate Finance April 22, 2013 Text Problem Sets: FIN/571 - Week Two Chapter Five Question # 4 Define the following terms: bond indenture, par value, principal, maturity, call provision, and sinking fund. Bond indenture. Bond indenture is a legal contract for a publicly traded bond. The structure of this contract outline incentives explicitly by detailing responsibilities, constraints, penalties, and oversight required. For example
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