Question $6$

a$)$ Assume that a stock price and volume chart also contain a $50-$day and a $200-$day

MA line. Describe and sketch a bearish pattern with the two MA lines and discuss

why it is bearish.

$(5$ marks$)$

b$)$ Describe the key steps required of a fund manager when setting up and running a

portfolio for a high net worth individual.

$(5$ marks$)$

c$)$ Consider two funds which have similar risk. Fund $B$ is estimated to return $11\%,$ it is

a load fund that charges a fee of $5\%.$ Fund $C$ is a no$-$load fund that charges a $2\%$

redemption fee and is expected to return $10\%.$ You intend to invest over a $4-$year

period. Showing your calculation, which one would you invest in$?$

$(5$ marks$)$

d$)$ Suppose that three stocks $($A$,$ B$,$ and C$)$ and two common risk factors $(1$ and $2)$

have the following relationship:

$E(R_A)=(0\mathrm{.}4){}_1+(1\mathrm{.}2){}_2$

$E(R_B)=(0\mathrm{.}6){}_1+(1\mathrm{.}3){}_2$

$E(R_C)=(0\mathrm{.}5){}_1+(0\mathrm{.}4){}_2$

Assume that all three stocks currently sell for $25$ and will not pay a dividend in the

next year.

If $1=4\%$ and $2=2\%,$ what are the prices expected next year for each of the

three stocks?

$(6$ marks$)$

e$)$ What are the trade$-$offs involved when constructing a portfolio using the sampling

method versus full replication?

$(5$ marks$)$

f$)$ Due to global instability, you expect oil stocks to perform well over the next $6$

months, as an active portfolio manager, how might you take advantage of this?

$(4$ marks$)$