Question 1:

Explain the relationship between skewness of a return distribution and investors' utility preferences.

Question 2:

Investors need to be aware of transaction costs when executing an investment strategy. The three dimensions of transaction costs are brokerage fees, the bid-ask spread and price impact.

Explain in detail, why price impact is considered as a component of transaction cost. Explain the types of trades (both investor characteristics and size of the transection) that would tend to result in the price impact being the biggest contributor to overall transaction costs when executing a trade.

Question 3:

Discuss three problems with the use of the Sharpe ratio to analyse the performance of a stock.