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Portfolio Diversification
The objectives of diversification are to:
To achieve diversification, the fund will invest in the various categories of assets classes viz., equity shares, debentures, government securities, etc. In most countries, portfolio diversification is subject to the regulations of the local government.
Selecting the Asset Classes
In any investment management system, once the objectives of the investment are set-up, the investor has to focus on the asset classes to invest. The resulting assets of a pension fund must be invested in such a way that the "value creation" goals for the business are most likely met. Capital market investment is one of the key investment vehicles for the pension funds around the world, though they have very unpredictable movements. This study includes current levels of stock and bond indices, their historical changes, inflation projections and also studies of the real estate values. Hence, the capital market expectations play a crucial role in setting the choice of asset classes.
ARR AND PAYBACK (a) Accounting rate of return (ARR) is a computation of the return on an investment where the annual profit prior to interest and tax is expressed as a percen
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The purpose of this financial analysis is to determine the economic viability during the last five years of the Lance Company and to advise our client on whether the acquisition of
Lee Sun's has sales of $6,000, total assets of $5,000, and a profit margin of 10 percent. The firm has a total debt ratio of 40 percent. What is the return on equity?
V ariable Costs It is an expense that varies directly with changes in business activities for example the cost of raw materials rise and decreases as the volume of producti
Explain the factors affecting the choice of a maximum cash balance amount. The maximum cash balance amount is defined by available investment opportunities, the expected return o
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Determine Current ratio or working capital ratio CA = Current assets/Current liabilities (times) Current ratio measures the short term solvency or liquidity; it demonstra
Solutions to this Conflict In common, to make sure that managers act to the best interest of shareholders, the firm will: (a) Acquire Agency Costs in the form of:
Determine about the risk management systems Management must report to board their review and implementation of internal controls and risk management systems. The board must rev
While portfolio diversification is the one true "Free Lunch" of investing, if a person starts with just considering long stocks, bonds, commodities and real estate as being the only portfolio options, then true diversification cannot be achieved. That is because conventional portfolio diversification is constrained by the use of "Asset Classes." I discuss this throughout my book, which is the #1 best-selling mutual fund book on the Amazon Kindle.My approach to diversification is quite different from conventional investment wisdom. One concept I think you'll find most interesting is in that I replace asset classes with "return drivers" and "trading strategies" (as I point out in the book, asset classes are simply long-only trading strategies that do not attempt to disaggregate their many separate return drivers). Once viewed in this fashion it is easy to create a truly diversified portfolio, rather than one constrained by the shackles of asset classes.I'm pleased to provide a complimentary link to the final chapter of the book, where I present the benefits (greater returns & less risk) of a truly diversified portfolio: http://bit.ly/vxDo6v.
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