Question
In: Finance
A collection of financial assets and securities is referred to as a portfolio. Most individuals and...
A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk analysis an integral part of the field of finance. Just like stand-alone assets and securities, portfolios are also exposed to risk. Portfolio risk refers to the possibility that an investment portfolio will not generate the investor’s expected rate of return.
Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio.
Consider the following case:
Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table:
|
Stock |
Percentage of Portfolio |
Expected Return |
Standard Deviation |
|---|---|---|---|
| Artemis Inc. | 20% | 6.00% | 29.00% |
| Babish & Co. | 30% | 14.00% | 33.00% |
| Cornell Industries | 35% | 11.00% | 36.00% |
| Danforth Motors | 15% | 3.00% | 38.00% |
What is the expected return on Andre’s stock portfolio?
9.70%
7.28%
14.55%
13.10%
Suppose each stock in Andre’s portfolio has a correlation coefficient of 0.4 (ρ = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 34%, the portfolio’s standard deviation (σpσp) most likely is (more than, less than, equal to) 34%.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
A collection of financial assets and securities is referred to as a portfolio. Most individuals and...
A collection of financial assets and securities is referred to
as a portfolio. Most individuals and institutions invest in a
portfolio, making portfolio risk analysis an integral part of the
field of finance. Just like stand-alone assets and securities,
portfolios are also exposed to risk. Portfolio risk refers to the
possibility that an investment portfolio will not generate the
investor’s expected rate of return.
Analyzing portfolio risk and return involves the understanding
of expected returns from a portfolio.
Consider the...
Portfolio expected return and risk A collection of financial assets and securities is referred to as...
Portfolio expected return and risk
A collection of financial assets and securities is referred to
as a portfolio. Most individuals and institutions invest in a
portfolio, making portfolio risk analysis an integral part of
finance. Just like standalone assets and securities, portfolios are
also exposed to risk. Portfolio risk refers to the possibility that
an investment portfolio will not generate the expected rate of
return.
Analyzing portfolio risk and return involves the understanding
of expected returns from a portfolio.
Consider...
Assume a portfolio of assets is made up of two securities, security A and security B....
Assume a portfolio of assets is made up of two securities,
security A and security B. An amount of investment of GHS12,000 is
made in security A and GHS8000 is made in security B. The return
for security A is 30% and the return for security B is 20%. The
standard deviation for security A is 15% whilst the standard
deviation of security B is 10%. The correlation of return of
security A and return of security B is given...
Which of the following assets is likely to be considered the most liquid? A. Marketable securities...
Which of the following assets is likely to be
considered the most liquid?
A. Marketable securities
B. Net fixed assets
C. Accounts payable
D. Inventories
Pharoah Company's equity securities portfolio which is appropriately included in current assets is as follows:
Pharoah Company's equity securities portfolio which is
appropriately included in current assets is as follows:December 31, 2018CostFair ValueUnrealizedGain (Loss)Catlett Corp.$180000$151000$-29000Lyman, Inc.17300018500012000$353000$336000$-17000Ignoring income taxes, what amount should be reported as a charge
against income in Pharoah's 2018 income statement if 2018 is
Pharoah's first year of operation?
An investment fund has the following assets in its portfolio: $52 million in fixed-income securities and...
An investment fund has the following assets in its portfolio:
$52 million in fixed-income securities and $52 million in stocks at
current market values. In the event of a liquidity crisis, it can
sell its assets at a 91 percent discount if they are disposed of in
two days. It will receive 93 percent if disposed of in four days.
Two shareholders, A and B, own 5 percent and 7 percent of equity
(shares), respectively.
a.
Market uncertainty has caused...
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...
why does portfolio risk go down when you include more financial assets in a portfolio?
why does portfolio risk go down when you include more financial
assets in a portfolio?
If you want to optimize your portfolio of risky securities, which portfolio is the ideal portfolio?...
If
you want to optimize your portfolio of risky securities, which
portfolio is the ideal portfolio?
a) the portfolio that is tangent to the CAL
b) The portfolio that is furthest to the right in the
return/standard deviation space
c) the minumum variance portfolio
d) the portfolio that offers the highest return
1.- Modern Portfolio Theory: A Portfolio of Risky Securities Is Not Necessarily a Risky Portfolio. Given...
1.- Modern Portfolio Theory: A Portfolio of Risky
Securities Is Not Necessarily a Risky Portfolio.
Given the portfolio investments and the price changes below,
compute the returns on the whole portfolio. Assume that you have
the same amount invested in each stock. The initial amount is $2000
on each company for a total investment of $10,000.
Initial Price Shares Bought End of Year
Price Value at End of
Year Returns
Co.
A
$40
$20
Co.
B
$80
...
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