previous advisor to invest all of his available funds of £300000 into strictly AIM companies only. Adrian had explained to his advisor that he classes himself as a risk averse investor, therefore is seeking to create an investment portfolio which overall, has a smaller chance of failing, although is less likely to generate large returns. The advice to purely invest into the Alternative Investment Market only does not meet Adrian’s investor profile. The AIM is a sub-market of the London Stock Exchange
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higher the risk the higher is stad devi) * Find E(X) * Find deviation= * Square deviation then find Variance * Stand deviation= Square root of Variance Preferences toward risk * expected utility E(u) = 0/2)u($10,OOO) + 0/2)u($30,OOO) = 0.5(0) + 0.5(8) = 14 * Risk averse prefers a certain given income to a risky income with the same expected value. * Risk neutral is indifferent between a certain income and an uncertain income with the same expected value. * Risk loving
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RISK AND RETURN IN CAPITAL MARKETS SECURITY RETURNS Components of security returns • Stocks – Capital gains/losses and dividends • Bonds – Capital gains/losses and interest • Returns stated in absolute dollar or percentage terms o Absolute dollar return = (end price – beginning price + cash flow) o Percent return = (end price – beginning price + cash flow)/beginning price = absolute dollar return / beginning price • If the security is a stock, the percent
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Chapter 6 1. Only a reflect pure market risk a. market risk b. firm-specific risk c. can be firm-specific, or due to market factors d. 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
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well performing as possible by finding the optimal weights, highest return, and lowest risk. The Harry Markowitz model of 1952, or the mean-variance model, was one of the earliest models created to compare and contrast securities outcomes. This model uses the weights, standard deviation, and covariance for each security, creating a weighted covariance matrix, therefore forecasting a very accurate estimate of what return and risk the securities or portfolio would give. The Single-Index model, introduced
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-Topic 5: Risk and Return HPU Due on: March 14, 2013 CLASS TIME (Solutions without necessary derivation cannot receive credit) 1. Please calculate the expected value and the standard deviation of returns for asset A (See below.) Asset A Possible Outcomes | Probability | Returns (%) | Weighted Value | Pessimistic | 0.25 | 10 | 2.5% | Most Likely | 0.45 | 12 | 5.4% | Optimistic | 0.30 | 16 | 4.8% | TOTAL | 1.00 | EXPECTED RETURN | 12.7% |
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SECTOR’S EQUITY RETURNS: THE IRANIAN CASE by ABSTRACT The purpose of this study is to examine the effect of oil and gas prices on transportation and storage sector’s equity returns in Iran. To this end, we analyze Iranian transportation and storage sector index for the period from the first week of January 2005 until the third week of March 2010. Based on the multifactor model and using time-series regression, our findings indicate that oil price is not an important determinant of returns in transportation
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cash flow, (5) term to maturity, (6) convertibility, (7) currency, (8) liquidity, (9) return predictability, (10) complexity, and (11) tax status. Diff: 2 Topic: 9.1 Properties of Financial Assets Objective: 9.1 the many key properties of financial assets: moneyness; divisibility and denomination; reversibility; cash flow and return; term to maturity; convertibility; currency; liquidity; return predictability or risk; complexity; and tax status 2) Which of the below is NOT one of the eleven properties
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the three (3) securities you chose. Be sure to include such information as name, company it represents (if applicable), pricing, and historical performance. 3. Assess the current risk return relationship of each of the three (3) securities. 4. Recommend one (1) strategy for maximizing return for the current risk return relationship identified for each of the three (3) securities. 5. Suggest how the Federal Reserve and its monetary policy affect each of the three (3) securities today. More
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continually fair. This consists of incorporated market prices reflecting associated information completely. Keeping values current is the role efficient markets play by keeping market price fair and prohibiting anyone to make a high returns unless he or she buys a much high risk investment. 3) Primary Market A primary market is a marketplace where securities are distributed for the first time. The government, businesses, and other groups issue debt or equity-based securities permissible to raising
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