Investments and Portfolio Management- Assignment Problem

Assignment Help Business Management

Reference no: EM132401037

Assignment Questions:

The word limit for this assignment is 1,200. Please keep to it. In addition, we now have electronic submission of all assignments, so it is necessary for you to use one file only. The file can be Excel, Word or a pdf.

Q.1 James is considering investing in security A that has offered average annual return of 12% and standard deviation of 18% and security B which has offered average annual returns of 10% and standard deviation of 14% in the recent past.

(a) If the correlation between A and B is 0.35, what is the least risky combination of these two assets?

(b) James does not mind taking excess risk provided he can earn an average return of 10% from the portfolio. The returns on 90-day T-bills are around 2.50% per annum. Assuming that James can borrow and lend at the risk free rate of return, advise how much James should invest in the portfolio (comprising of security A and security B) and the risk free asset so that the combination of risky portfolio and risk free asset provides 10% return. How much would be invested in security A, security B, and the risk free asset and what would be the risk of the new portfolio?

Q.2 Read the enclosed article in the Wall Street Journal and answer (word limit maximum: 500 words) the following questions:

a) Why did Merck's price fall so significantly and which important finance theory the case relates to and why?

b) As CEO of Merck, Raymond Gilmartin made the decision to stop sales of Vioxx. Should he have withheld this information since it would have a clear negative effect on share price and he had an obligation to maximize the value of these shares?

Q.3. What is the price of a 365-day Treasury Bill with a face value of £1,000,000 and which has 59 days to maturity if it trades at a discount rate of 6.75%.

Q.4 You own the following portfolio, which is a significant part of your wealth:

My portfolio

My portfolio
Security	Face	Market	Term	Coupon	Yield to
	Value	Value	(years)	paid	maturity
				Annually
US Treasury Bill	$20,000	$19,192	1	0%
Corporate Bond	$67,500	$60,359.2	8	10%	12.14%
Rated Aa
Corporate Bond	$112,500	$89,968.9	10	12%	16.17%
Rated B
Corporate Bond	$37,500	$39,753.2	5	15%	13.28%
Rated Baa
Cash	$7,500

(a) What is the yield to maturity for the T Bill?

(b) Calculate the Macaulay duration of each of the securities, and the Macaulay duration of the portfolio?

(c) If your friend has an investment horizon of 3 years and wants to sell the portfolio at that time to use the principal + interest, what recommendations would you make regarding the composition of the portfolio?

(d) Using Excel Solver show how much would need to be invested in each instrument to obtain a portfolio Macaulay duration of 3.25 years. There are the following constraints.

1 The total investment should not change.

2 The same amount needs to be held in cash

3 A total of $100,000 market value needs to be invested in the T Bill and $20,000 in the Aa Bond.

4 Yield is maximized.

NB Work on numbers in the above portfolio table.

(e) Is default risk a major concern for this portfolio?

(f) The Baa rated bond has just been re-rated by one of the rating agencies and this has the impact of reducing its yield to maturity by 5 basis points. If at the same time there is a general change in interest rates so that yields fall across the whole of the yield curve by 20 basis points (including the rerated bond), what is the new value of the portfolio?

Reference no: EM132401037

Questions Cloud

What value of us imports in 2018 : For answering this question you are supposed to study "The Impact of the 2018 Trade War on U.S. Prices and Welfare" by Amiti, Redding, Weinstein.

Discuss what is problematic about the model : Discuss what is problematic about this model and use sources to discuss alternative ways of thinking about sex and gender. Develop an argument around these.

Common policies that organizations typically implement : Use the Internet to research common policies that organizations typically implement.

What are the duties of a sports agent : What are the duties of a sports agent? Chron. Heitner, D. (2009). Duties of sports agents to athletes and statutory regulation thereof. Dartmouth Law Journal

Investments and Portfolio Management- Assignment Problem : Investment Portfolio Management Assignment Help and Solutions-The University of Manchester, UK-what is the least risky combination of these two assets?

Different chapters from performance dashboards : After having read the different chapters from Performance Dashboards, The Big Book of Dashboards and Information Dashboard Design

Create ideas for conducting each activity : Create ideas for conducting each of the four activities listed below: Employee research (needs and interest), Development and Implementation.

Computer by analyzing the output of baseline comparison : Identify settings that have changed for a specific computer by analyzing the output of a baseline comparison, then list settings that should be changed.

What is the value of the chinese balance of payments deficit : a. What is the value of the Chinese balance of payments deficit? b. What is the value of the Nambian balance of payments surplus?

User Account

All Pages