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investment analysis portfolio

Questions and Answers of Investment Analysis Portfolio

4. Given the following data:What is the optimum portfolio assuming no short sales if RF 5% and p 0.5? Security Expected Standard Number Return Deviation 1 15 10 234567 20 18 15 20 12 10 10 14 16 5 10
5. Assuming Is are uncorrelated and 8, 72 4, 2.0, on 2.5 calculate following using the general multi-index model(1) Expected returns.(2) Variance Of return.(3) Covariance of return. Security C B A 1
5. Given the data above and the fact that S and m = 5, calculate the following:(a) The mean return for each security.(b) 'The variance of each security's return.(c) The covariance of returns between
1. Monthly return data are presented below for each of three stocks and the S&P index(corrected for dividends) for a 12-month period. Calculate the following quantities:A.B.C.D.E.F.Alpha for each
5. Assume that the data below apply to two efficient portfolios. What is the efficient fron-tier? Assume the standard definition of short sales. Portfolio R AB 10 8 64 = 20
4. Consider the following data. What is the Optimum P'rtfolio, assuming short sales are allowed (standard definition)? Tracæ Out the efficient frontier. Number R 9 10 -234567ag 10 8 12 14 6 9 5 8 10
2. Given the following information, what is the optimum portfolio if the lending and bor-rowing rate is 6%, 8%, or 10%? Assume the Lintner definition of short sales. Security Mean Return Standard
1. Assume analysts provide the following types of information. Assume (standard defi nition) short sales arc allowed. What is the optimum portfolio if the lending and bor-rowing ratc is 5%? Security
2. Below is actual price and dividend data for three companies for each of seven months.B.C.D.Compute the rate of return for each company Compute the average rate or return for each company.Compute
1. Assume that you are considering selecting assets from among the following four candidates:Market probability Condi Oon ProbabilityAssume that there is no relationship between the amount Of
8. Using geometric mean, which investment is preferred in Problem 6?
7. If R, is 3%, what investment in Problem 6 is preferred using Roy's safety first crite- rion?
5. Using geometric mean return as a criterion, which investment is to be preferred in Problem I ?
4. If RL = 5% and 10%, what is the preferred investment shown in Problem 1 using Telser's safety first criterion?
3. If equals 10%, what is the preferred investment shown in Problem 1 using Kataoka's safety first criterion?
2. If RL equals 5%, what is the preferred investment shown in Problem 1 using Roy's safety first criterion?
11. In Problem 10 what is the minimum amount that the $5 outcome would have to be changed so that the investor is indifferent between the two investments?
9. What are the properties of the function U(W") = —e¯W?
8. What aze the properties of the utility function U(W) = — W—1/2?
7. Assume that an investor's utility function is U(W) a + becW where (a)a, b,c, are constants, and (b) W is wealth. Assuming that the investor prefers more to less and is risk averse, what can be
6. Consider the function U(W) = ae of a and b if the investor is assumed to prefer more to less and to exhibit risk aversion?
5. Consider the utility function U(W) = W¯IÆ. What are the characteristics of this func-tion with respect to absolute and relative risk aversion?¯bW, where a and b are constants. V"llat are the
4. Consider the choice shown in Problem 3. The probability of a $5 return is and $12 return is l. How much would these probabilities have to change so that the investor is indifferent between
2. Assume the utility function is U(W) = —W What is the preferred investment in Problem I ?
6. What is the optimum portfolio assuming short sales but no riskless lending and bor-rowing with p = 0.5 for all pairs Of securities? Use the data in Problem 4.
5. What is the optimum portfolio assuming short sales if RF = 5% and p = 0.5? Use the data in Problem 4.
3. Using the data from Problem l, What is the optimum portfolio assuming short sales are allowed but risklegs lending and borrowing are forbidden?
2. What is the optimum portfolio assuming short sales if RF 5% and the data from Problem I are used?
I. Given the following data: 02 Security Numb er Expc cted 1.0 0.8 30 20 What is the optimum portfolio assuming no short sales if RF 5%?
8. Given the following multi-index model where and are correlated and given the regression equation 1 + 1.311 + de transform the equation for Ri into one with orthogonal indexes.
7. Re•pt Problem 6, assuming now that firms B & C are in the same industry.
6. Using the data from Problem 5, assume the model is now an Industry Index Model where Il = I and is now an industry index. Assuming that firms A and B are in the same industry, calculate the
4. Given a three-index model such that all indexes are orthogonal, &rive the formulas for the expected return, vanance, and covariance of any stock.
3. Assume that all assumptions Of the single-index model hold, except that the covari-ance between residuals is a constant K instead of zero. Derive the covariance between the two securities and the
2. Complete the procedure in Appendix A for reducing a general three-index model to a three-index model with orthogonal indexes.
1. Given that the correlation coefficient between ail securities is the same, call it p*, and the assumption of the single-index model is accepted, derive an expression for the Beta on any stock in
8. Suppose Bl = I and = 0.25 0.210 0.32 = 0.18 0.20, fore-cast each security's Beta using the Vasicek technique.
7. Using Blume's technique where ßi2 = 0343 + 0.677ßi calculate pa for the securi-ties in Problem 5.
6. Using the data in Problem 5 and assuming an equally weighted portfolio, calculate the following(a)(b)(c)0-2
4. If the Blume adjustment equation is fit and the appropriate equation is I -0.41+0.60ß„A.B.what is your best forecast of Beta for each of the stocks in Question l?If the parameters of the
3. Show that the Vasicek technique leads to a simple proportional weighting of the mar-ket Beta and the stock's Beta if the standard error of all Betæs is the same.
2. Compute the mean return and variance of return for each stock in Problem I using B.C.D.(l) The single-index model.(2) The historical data.Compute the covariance between each possible pair of
3. Assume the information given in Problem I. but that short sales arc not allowed. Set up the formulation necessary to solve the portfolio problem.
6. In Problem 5, assume a riskless rate of 10%. What is the Optimal investment ?
5. Assume p I , — I , O. For eac h corre lation coefficient what is the combmaåon that yields the minimum and What is that ? Assume no short selling.ted Return Sccwity I Security 2 Stand Deviation
4. Derive the expression for the location Of all portfolios Of two securities in expected return standard deviation space when the correlation between the two securities is — I.
3. For Problem 2 find the composition of the portfolio that has minimum variance for each two sewrity combinations you considered.
2. Answer the questions to Problem I with data from Chapter 4, Problem 2.
l. Return to the example presented in problem I , Chapter 4.A. Assuming shoal selling is not allowed:(I) For securities I and 2 find the composition, standard deviation, and expected return of that
6. For the data in Table 4.8, suppose an investor desires an expected variance less than 8.What is the minimum number of securities for such a Ewrtfolio?
5. For the Italy data and Belgium data of Table 4.9, what is the ratio of the difference between the average variance minus average covariance and the average covariance?If the average variance of a
4. Ln Problem 3 how many securities need to be held before the risk Of a portfolio is only more than minimum?
3. Assume that me average variance of return for an individual security is 50 and that the average covariance is 10. What is the variance of an equally weighted port-folio of 5, 10.20, 50, and 100
12. Assume the borrowing rate is 10% and the lending rate is 5%. Also assume your income is $100 in each period. What is the maximum you can consume in each period? What is the opportunity set?
11. Assume you earn $10,000 in periods I and 2. Also you inherit $10,000 in period 2.If the borrowing/lending rate is 20%, what is the opportunity set? What is the maxi-mum that can be consumed in
10. Using the two-period consumption model, solve the following problem. Assume you can lend and borrow at 5% and your income is $50 in each period. Derive the oppor-tunity set and add your
9. Suppose you have $10.00 to spend on dinner. There are two possibilities: pizza at$2.00 a slice or hamburgers at $2.50 apiece. Constmct an opportunity set alge-braically and graphically. Add
8. In Problem 3 what is the preferred choice if the preference ftnction discussed in Problem 7 holds?
7.Assume your preference function P is P = Cl + % + CIC2. Plot the location Of all points with P = 50, P 100.
6.Assume you have income of $5,000 in each of two periods and can lend at 10% but pay 20% on borrowing. What is your opportunity set?
5.An individual has two employment opportunities involving the same work condi-dons, but different incomes. Job I yields Yl = 5(), Y = 30. Job 2 yields Yl = 40, Y2 40. Given that markets are perfect
4.Assume you can lend and borrow at 5% and have $20,000 in income in each of two periods. Further assume you have current wealth of $50,000. What is your opportu-nity set?
3. Assume you can lend and borrow at 10% and have $5,000 in income in each of two periods. What is your opportunity set?
2.Let us solve a two-period consumption investment decision similar to the one pre-sented in the text. Assume that you have income equal to $20 in each of two periods, Furthermore, you have the
1. Walking down an unfamiliar street one day, you come across an old-fashioned candy store. They have red hots five for one penny, and rock candy—one small piece for one penny. You decide to
Plot the relative-strength ratio computed in Problem 6 on your bar chart. Discuss whether the stock's relative strength is bullish or bearish.
High rates of ____________ are sometimes associated with economies that are growing too fast – where the demand for goods and services is outpacing productive capacity.(A) interest(B) employment(C)
Increasing general tax rates is a tool used in ____________ .(A) fiscal policy(B) exchange rate control(C) monetary policy(D) employment balancing(E) currency depreciation
During the ____________ of the industry life cycle, competition is attracted into an industry, causing profit margins to normalize.(A) maturation phase(B) mature growth phase(C) rapid growth phase(D)
Analysis of an industry or sector shows that new technology about to be launched would make it cheaper for a customer to move into using this newer technology rather than the existing, more
Breaches in corporate governance would be an example of ____________ .(A) systematic risk(B) operational risk(C) liquidity risk(D) regulatory risk(E) interest rate risk
The ____________ is a percentage measuring the internal strength of a price pattern.(A) resistance level(B) moving average(C) RSI(D) support level(E) volume peak
The ____________ occurs when a price reaches a certain point from which, technically, it is expected to move downwards.(A) resistance level(B) consolidation pattern(C) triangle(D) volume peak(E)
____________ are probably the most reliable reversal patterns in technical analysis.(A) triangles(B) resistance levels(C) head and shoulders(D) support levels(E) volume peaks
Suppose that a stock pays four annual dividends of \($50\) per year and that the discount rate (k) = 10%. Using the simple dividend discount model, what is the present value of the stock?(A)
Assuming that a company has a dividend growth rate of 5%, the discount rate is 8%, there are 15 years of annual dividends to be paid and the current dividend is 80p, what is the value of the
If a company’s dividends are projected to grow at 3% in perpetuity, the discount rate is 10%, and the current dividend is \($15\) , what is the value of the stock, using the constant perpetual
A company has an ROE of 10%, an EPS of \($3.00\), and a dividend per share D0 of \($2.48\) . The discount rate is 7.00% and the current share price is \($75\) . The value of the company’s stock is
Consider that a company has a current dividend of \($4\) , and that dividends are expected to grow at the rate of g1 = 6% for t = 5 years and thereafter grow at the rate of g2 = 3%. With a discount
The idea behind the __________ approach of valuing stocks is that the intrinsic value of the equity in a firm is equal to the present value of the net cash flows to shareholders that can be created
Using the following information on Share Z, what is the estimate of Share Z’s next year share price as given by the P/E and by P/CF?(A) \($67.17\) , \($58.40\)(B) \($58.40\) , \($64.52\)(C)
A company’s overhead costs including salaries and advertising are known as _________ and are found in the ____________ .(A) cost of goods sold, income statement(B) general administrative expenses,
Using the financial statement information for Company Z, what is the company’s current ratio for this year?(A) 2.62(B) 1.24(C) 2.00(D) 0.50(E) 0.40
Using the financial statement information for Company Z, the company’s gross profit margin for this year and for last year are ____________ and ____________ .(A) 49%, 51%(B) 62%, 68%(C) 60%, 63%(D)
What is the rate of return on stockholders’ investment in Company Z this year, using the data given in the chapter?(A) 8.6%(B) 2.8%(C) 5.6%(D) 16.8%(E) 15.4%
Company Z’s dividend payout ratios for this year and for last year are ____________ and ____________ .(A) 24.5%, 23.9%(B) 19.4%, 18.0%(C) 20.0%, 19.3%(D) 32.4%, 31.4%(E) 17.1%, 16.9%
Consider two stocks. Stock X has a P/E ratio of 15, an EPS of 6.7% and an earnings growth rate of 10%; stock Y has a P/E ratio of 20, an EPS of 5% and an earnings growth rate of 20%. The share prices
Usually, in a tracker fund, the largest source of trading costs are ____________ .(A) stock splits(B) bonus issues(C) mergers and acquisitions(D) dividend reinvestments(E) rights issues
If a portfolio manager indexed a portfolio to the sector level, but not necessarily to the stock level, this would be known as ____________ .(A) value investing(B) sampling(C) hedging(D)
____________ involves forecasting returns of different styles in order ultimately to enhance returns of the portfolio over time by moving from one style to another.(A) Momentum investing(B)
In the US, to be recognized as a qualified investor, an individual must have over ____________ net worth, and an institutional investor must have over ____________ in capital.(A) \($25\) million ,
By employing ____________ , a hedge fund can significantly increase its risk and potentially post negative absolute returns to the portfolio.(A) hedging techniques(B) rebalancing(C) investment
____________ provides funds for use in product development and marketing for companies which have not yet sold their products commercially.(A) Seed capital(B) Other early stage financing(C) Start up
____________ practices focus on a company’s social and environmental practices.(A) SEE(B) Corporate governance(C) Dividend(D) Private equity(E) Venture capital
_____________ have fairly long time horizons and are able to invest in more speculative assets.(A) General business insurance companies(B) Pension funds(C) Investment trusts(D) Commercial bank
_____________With , the broker can have the final say on which assets are bought and sold in a portfolio.(A) execution only service(B) portfolio due diligence service(C) advisory dealing service(D)
_____________ occur where a trust’s income is not paid out, but added to the capital in the form of new units.(A) Accumulation units(B) Income units(C) Distribution units(D) Dividends(E) Taxes
In the UK _____________ can invest up to 10% in the shares of a single company, whereas can invest up to 15% in a single company.(A) pension funds, banks(B) investment trusts, unit trusts(C) banks,
In the UK, a(n) _____________ advises retail customers on financial matters.(A) PIA(B) IMRO(C) IFA(D) SIB(E) SFA

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