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Assessment 2 aims to provide students with an opportunity to analyse various investment alternatives based on the respective risk and return so as to choose the most appropriate investment opportunity. You are expected to read beyond textbooks and able to apply the knowledge gain from real life examples either from your working environment or/and case studies read, and are able to demonstrate your competence in the areas indicated in the questions. You are encouraged to provide specific in-depth comments instead of general comments. Instructions to students: Download stock prices for any two different companies – 5 years of monthly closing prices for each company. You can use any database to obtain the prices e.g. datastream, yahoo finance (click the Investing tab followed by the Historical Prices tab) etc. Use data from December 2008 to December 2013 to generate average monthly returns. Calculate the annualised mean return, standard deviation and correlation of the stocks. Use investment proportions for the two stocks ranging from 0% to 100% using intervals of 5%. Tabulate the investment opportunity set of the two stocks. Plot the investment opportunity set of the two stocks. Calculate the weights on the optimal risky portfolio consisting of the two stocks, which we denote by stock 1 and stock 2, using the following formulae: Calculate the expected return and standard deviation of this optimal risky portfolio. Plot the optimal risky portfolio on the diagram determined in (b) above. Calculate the weights on the minimum variance portfolio consisting of the two stocks, which we denote by stock 1 and stock 2, using the following formulae: Calculate the expected return and standard deviation of this minimum variance portfolio (MVP). Plot the minimum variance portfolio on the same graph in (b) above. Identify the MVP and efficient frontier consisting of the portfolios made up of these two assets. Label them clearly on the graph. Discuss in your report diversification referring to the efficient frontier and comparing the expected return and standard deviation of the optimal risky portfolio to the minimum-variance portfolio in your answer.
Niko has purchased a brand new machine to produce its High Flight line of shoes. The machine has an economic life of five years. The depreciation schedule for the machine is straight-line with no salvage value. Assume that the corporate tax rate is 3..
Winny's Office Furniture has a contribution margin ratio of 16%. If fixed costs are $191,800, how many dollars of revenue must the company generate in order to reach the break-even point?
Mitts Cosmetics Co.'s stock price is $60.31, and it recently paid a $2.50 dividend. This dividend is expected to grow by 24% for the next 3 years, then grow forever at a constant rate, g; and rs = 15%. At what constant rate is the stock expected to g..
A US investor has $10 million to invest in interest-bearing securities for one year. He can invest in US dollars at 2 ¾ % p.a. or in pounds sterling at 4 ½ % p.a. The current spot rate (American terms) is 1.8172 dollars per pound. At what spot rate o..
The Saunders Investment Bank has the following financing outstanding. Debt: 120,000 bonds with a coupon rate of 8 percent and a current price quote of 110.0; the bonds have 20 years to maturity. Preferred stock: 210,000 shares of 6 percent preferred ..
Just before his first attempt at bungee jumping, John decides to buy a life insurance policy. His annual income at age 30 is $36,000, so he figures he should get enough insurance to provide his wife and new baby with that amount each year for the nex..
On October 1m Mutch Company sold merchadise in the amount of $5,800 to Carr Company, with credit terms of 2/10,n/30. The cost of the items sold is $4,000. Mutch uses the perpetual inventory system. On October 4, Carr returns some of the merchandise. ..
Goiania Corporation is expecting to have EBIT next year of $11 million, with a standard deviation of $7 million. Goiania has $35 million in bonds with coupon of 8%, selling at par which is being retired at the rate of $2.5 million annually. Calculate..
Prices of zero-coupon bonds reveal the following pattern of forward rates: 0f1 = y1 = 5%, 1f1 = 7%, 2f1 = 8%. In addition to the zero coupon bonds, investors also may purchase a 3-year bond making annual coupon payments of $60 with par value of $1,00..
The expected return on any asset is dependent upon its beta. Explain what Beta is, why it is used and its relevance to investment decisions.
Assume that initial margin requirement is 60% of the total investment and a maintenance margin requirement is 30% of the total investment for long position and 35% of the total investment for the short position. Answer the following questions (a) & (..
VC funds in the us generally do not accept direct investments from individual investors who are not already very wealthy even though many individuals would like to invest in VC. The reasons hey don’t accept such investments include1. Because investme..
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