Question
In: Accounting
It is commonly accepted that there are gains from adding securities to an investment portfolio. Explain...
It is commonly accepted that there are gains from adding securities to an investment portfolio. Explain what is meant by this statement. (your answer should include a discussion and example regarding systematic and non systematic risk as well as an indication of the optimal number of assets to be included within a portfolio in theory and in practice)
5 marks
Solutions
ekkarill92 answered 1 year agoRelated Solutions
(a) It is commonly accepted that there are gains from adding securities to an investment portfolio....
(a) It is commonly accepted that there are gains from adding
securities to an
investment portfolio. Explain what is meant by this statement.
(Your answer
should include a discussion and example regarding systematic
and
non‐systematic risk as well as an indication of the optimal number
of assets to be
included within a portfolio in theory and in practice.)
Click or tap here to enter text.
(b) The following table provides monthly percentage price
changes for two well
known market indexes....
a) It is commonly accepted that there are gains from adding securities to an investment portfolio....
a) It is commonly accepted that there are gains from adding
securities to an investment portfolio. Explain what is meant by
this statement. (Your answer should include a discussion and
example regarding systematic and non‐systematic risk as well as an
indication of the optimal number of assets to be included within a
portfolio in theory and in practice.)
(b) The following table provides monthly percentage price
changes for two well known market indexes.
Month
Russell 2000
Nikkei
1
0.04...
• Determine whether adding securities to the portfolio reduces the portfolio risk as measured by the...
• Determine whether adding securities to the portfolio reduces
the portfolio risk as measured by the standard deviation and the
benefits of diversification
1. Consider that you hold securities in a company that has just accepted an investment of...
1. Consider that you hold securities in a company that has just
accepted an investment of $10 million in 6x liquidation at $3
million pre-money. How would you value this company if you were the
“new money”? The previous investors?
2. If a mezzanine investor has received warrant coverage for 5
percent of a $3 million loan where the equity investors are paying
$2.50 per share, how many shares will she be able to buy and at
what price?
3....
Vaughn Company has the following securities in its investment portfolio on December 31, 2017 (all securities...
Vaughn Company has the following securities in its investment
portfolio on December 31, 2017 (all securities were purchased in
2017): (1) 3,100 shares of Anderson Co. common stock which cost
$55,800, (2) 9,600 shares of Munter Ltd. common stock which cost
$547,200, and (3) 6,100 shares of King Company preferred stock
which cost $250,100. The Fair Value Adjustment account shows a
credit of $10,900 at the end of 2017. In 2018, Vaughn completed the
following securities transactions. 1. On January...
You are an active investor in the securities market and you have established an investment portfolio...
You are an active investor in the securities market and you have
established an investment portfolio of two stock A and B five years
ago. Required:
a) If your portfolio has provided you with returns of 9.7%,
-6.2%, 12.1%, 11.5% and 13.3% over the past five years,
respectively. Calculate the geometric average return of the
portfolio for this period? (1 mark)?
b) Assume that expected return of the stock A in your portfolio
is 14.6%. The risk premium on the...
You are an active investor in the securities market and you have established an investment portfolio...
You are an active investor in the securities market and you have
established an investment portfolio of two stock A and B five years
ago.
Required:
a) If your portfolio has provided you with returns of 9.7%,
-6.2%, 12.1%, 11.5% and 13.3% over the past five years,
respectively. Calculate the geometric average return of the
portfolio for this period? (1 mark)?
b) Assume that expected return of the stock A in your portfolio
is 14.6%. The risk premium on the...
Addison Manufacturing holds a large portfolio of debt securities as an investment. The fair value of...
Addison Manufacturing holds a large portfolio of debt securities
as an investment. The fair value of the portfolio is greater than
its original cost, even though some debt securities have decreased
in value. Sam Beresford, the financial vice president, and Angie
Nielson, the controller, are near year-end in the process of
classifying for the first time this securities portfolio in
accordance with GAAP. Beresford wants to classify those securities
that have increased in value during the period as trading
securities...
Addison Manufacturing holds a large portfolio of debt securities as an investment. The fair value of...
Addison Manufacturing holds a large portfolio of debt securities
as an investment. The fair value of the portfolio is greater than
its original cost, even though some debt securities have decreased
in value. Sam Beresford, the financial vice president, and Angie
Nielson, the controller, are near year-end in the process of
classifying for the first time this securities portfolio in
accordance with GAAP. Beresford wants to classify those securities
that have increased in value during the period as trading
securities...
Harding Financial Services Company holds a large portfolio of debt and stock securities as an investment.
Harding Financial Services Company holds a large portfolio of debt and stock securities as an investment. The total fair value of the portfolio at December 31, 2017, is greater than total cost. Some securities have increased in value and others have decreased. Ann Bales, the financial vice president, and Kim Reeble, the controller, are in the process of classifying for the first time the securities in the portfolio.
Bales suggests classifying the securities that have increased in value as trading securities...
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