Reena makes a living by selling paintings of the town in which she lives. She sells them in an open-air market once a week. In
Reena makes a living by selling paintings of the town in which she lives. She sells them in an
open-air market once a week.
In order to be able to sell more pictures in a week she decides to buy a studio, pay someone to
help in the studio and try to increase demand by advertising in the local paper.
Which factors of production were changed?
A capital only
B labour and capital
C labour and land
D labour only
(9 points) You are hired as a portfolio associate at XYZ investment bank. Your client asked your opinion of three different manager hire options. Option 1: Hire a single manager in either a growth or value style, but not both Option 2: Hire two managers, one in each style Option 3: Hire one manager in market-oriented style Your director, who oversees all active managed funds within the bank, asked you to draft a presentation to the client (a) (2.5 points) Compare value, growth and market-oriented investing styles. (ii) List advantages and disadvantages of each of the three options that the client was asking about. You have obtained a copy of your client's portfolio. Client's Portfolio Market Benchmark Number of stocks 20 200 Weighted average market cap 1 billion 2 billion P/E 8 19 Price to Book Ratio 1.3 2.0 Dividend Yield 5% 1% EPS projected growth 8% 15% Industry weightings: Client's Portfolio Market Benchmark Healthcare 0% 20% Utilities 35% 20% Finance 15% 10% Consumer Discretionary 30% 10% Information Technology 0% 10% Telecommunications 10% Materials 20% 10% Industrials 0% 10% (b) (1.5 points) (1) Explain how investing styles can be evaluated using holdings based style analysis. (ii) Evaluate the investment style of your client's portfolio.Your director has decided to propose a new investment manager to the client. Based on his research and client's investment constraints, only two investment managers are eligible for consideration. . Manager A follows 400 stocks with annual forecasts and the information coefficient for each of the forecasts is 0.04 Manager B follows 500 stocks with annual forecasts and the information coefficient for each of the forecasts is 0.03 (1.5 pounds) Kecommend which manager A or B should be selected. Another client has expressed interest in lower investment management fee products while maintaining market exposure. (d) (1.5 points) Describe the advantages and disadvantages of passive investing using exchange traded funds, conventional indexed mutual funds and indexed institutional portfolios. The client has decided to structure her portfolio of managers as shown below: Manager Allocated Expected Alpha Expected Tracking Assets ($MM) % ) Risk (%) W X 100 4 Y 100 6 100 A Total Investment 1,100 The client assumes the managers' alphas are uncorrelated. The client's objectives call for an information ratio of at least 0.6, with a tracking risk of no more than 1% per year. (e) (2 points) (i) Characterize the structure of the above portfolio of managers. (ii) Evaluate whether the portfolio of managers is expected to meet the investment objectives
