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- Suppose you visit with a financial adviser, and you are considering investing some of your wealth in one of three investment portfolios: stocks, bonds, or commodities. Your financial adviser provides you with the following table, which gives the probabilities of possible returns from each investment: Stocks Bonds Commodities Probability Return Probability Return Probability Return 20% 15% 0.15 20% 0.6 10% 0.2 0.2 12.5% 0.4 7.5% 0.2 0.25 0.2 0.4 3.8% 0.2 0.2 0% To maximize your expected return, you should choose O A. commodities. B. bonds. OC. stocks. OD. All of the portfolios have the same expected returnSelect the term associated with mutual funds, ETFs and real estate that corresponds to each of the given descriptions. (Note: These are not necessarily complete definitions, but there is only one possible answer for each description.) Description This refers to a risk management technique where investors collect their money in a fund and then invest the fund into a diversified set of securities This plan is offered by most open-ended funds and allows intors to automatically receive a certain amount of money periodically This is an investment company that allocates investor funds into both income generating property and mortgage loans This is a specific type of real estate investment trust that owns and operates income-producing real This fund limits its investments to short-term, tax-exempt municipal securities TermSuppose that a mutual fund agent approaches you and promote a fund which allows you to withdraw money from your Employment Provident Fund (EPF) to invest. From the analysis of the agent, the fund expected to pay up to 11% return, and you know that EPF paid an average 6% return and treasury’s return fixed at 2.75%. Based on the discussion in this chapter and in your opinion, are you going to take the investment? Justify your answer
- As the chief investment officer for a money management firm specializing in taxable individual investors, you are trying to establish a strategic asset allocation for two different clients. You have established that Ms. A has a risk-tolerance factor of 8, while Mr. B has a risk-tolerance factor of 27. The characteristics for four model portfolios follow: ASSET MIX Bond 93% 75 32 13 Portfolio 1 2 3 4 Stock 7% 25 GB 87 a. Calculate the expected utility of each prospective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places. 1 2 3 Portfolio Ms. A ER 8% 9 10 11 b. Which portfolio represents the optimal strategic allocation for Ms. A? Which portfolio is optimal for Mr. B? Portfollo-Select-represents the optimal strategic allocation for Ms. A. Portfolio Select is the optimal allocation for Mr. B. c. For Ms. A, what level of risk tolerance would leave her indifferent between having Portfolio 1 or Portfolio 2 as her strategic…Using Yahoo Finance, find two different mutual funds (such as a growth fund, a growth and income fund, a sector fund, or a bond fund). Compare the funds based on their size, management, risk level, and dividend distributions. Then, determine which of the two funds would be more appropriate.1. Suppose there is a mutual fund and each consumer buys | a share in it for her endowment at t = 0. The mutual fund maximises the wealth of its shareholders when choosing IF, the investment in the long term technology. At t =1, the mutual fund pays dividend d to each of its shareholders. At t = 1, the shares can be traded at price p*. a. Set up the mutual fund's optimisation problem and derive and interpret the first order condition. What happens when R increases and why? b. What is the optimal consumption profile cf , c and the optimal investment IF? | c. Calculate (i.e. derive an expression for) d and p. 2. Now suppose there is no financial intermediary to handle liquidity shocks. However, at t = 1 a market for bonds opens up and agents can trade their wealth at t = 1 for | wealth at t 2. Each bond pays 1 at t = 2 and its price is pM. Calculate the consumer's optimal investment decision IM at t = 0 , the price of the bond pM, and the optimal consumption in the two states cM, cM. 3.…
- Asset allocation is the decision of how you divide your investment portfolio between various assets. Typical asset categories include cash or short-term securities (Treasury bills, CDs, etc.), bonds (municipal bonds, corporate bonds, etc.), and equity funds or equities (stocks, stock mutual funds, etc.). The following table illustrates several model portfolios that you can use as a basis for your own investment plan, depending on such factors as your time horizon, risk tolerance, and investment philosophy. Model Portfolios and Time Horizons Risk Tolerance/Investment Philosophy 0–5 Years 6–10 Years 11+ Years High Risk/Aggressive 10% Cash 20% Bonds 100% Equities 30% Bonds 80% Equities 60% Equities Moderate Risk/Moderate 20% Cash 10% Cash 20% Bonds 40% Bonds 30% Bonds 80% Equities 40% Equities 60% Equities Low Risk/Conservative 35% Cash 20% Cash 10% Cash 40% Bonds 40% Bonds 30% Bonds 25% Equities 40% Equities 60% Equities…a. A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests in stocks, bonds, short-tem money market instruments and other securities. The perfomance of these mutual funds and the portfolio they build needs to be evaluated as frequently as possible. Evaluating the performance of these mutual funds is important for both existing and potential investors. The Table below provides the average retum, standard deviation and betas of selected equity mutual funds over a period of three years. The average risk free rate for the period is estimated at 15%. Portfolio Average return Standard Deviation Beta Portfolio A 27.62 16 1.2 Portfolio B 20.12 15 0.9 Portfolio C 26.25 12 1.05 GSE retum (benchmark) Required: Estimate and compare the performance of the funds with the market using: 16.18 10 1.0 i. Treynor's measure ii. Sharpe's measure Jensen's Measure iii.a. A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests in stocks, bonds, short-tem money market instruments and other securities. The perfomance of these mutual funds and the portfolio they build needs to be evaluated as frequently as possible. Evaluating the performance of these mutual funds is important for both existing and potential investors. The Table below provides the average retum, standard deviation and betas of selected equity mutual funds over a period of three years. The average risk free rate for the period is estimated at 15%. Standard Deviation Portfolio Portfolio A Portfolio B Portfolio C Average return Beta 27.62 16 1.2 20.12 15 0.9 26.25 12 1.05 GSE retum (benchmark) Required: Estimate and compare the performance of the funds with the market using: 16.18 10 1.0 i. Treynor's measure ii. Sharpe's measure iii. Jensen's Measure b. The issuing of security goes through a number of processes. Once…
- w Select the appropriate term to complete the sentences. A offers investors the opportunity to pool their investment dollars with a group of other investors, which in turn allows them the ability to purchase multiple security investments. The investments are collected into a single Mutual funds may prove to be a smarter investment option for the investor that prefers to investment risk.a. A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests in stocks, bonds, short-term money market instruments and other securities. The performance of these mutual funds and the portfolio they build needs to be evaluated as frequently as possible. Evaluating the performance of these mutual funds is important for both existing and potential investors. The Table below provides the average return, standard deviation and betas of selected equity mutual funds over a period of three years. The average risk free rate for the period is estimated at 15%. Portfolio Average return Standard Deviation Beta Portfolio A 27.62 16 1.2 Portfolio B 20.12 15 0.9 Portfolio C 26.25 12 1.05 GSE return(benchmark) 16.18 10 1.0 Required:Estimate and compare the performance of the funds with the market using:i. Treynor’s measureii. Sharpe’s measureiii. Jensen’s Measure b. The issuing of security goes through a number of…1. What are some comparative advantages of investing in the following? a) Unit investment trusts. b) Open-end mutual funds. c) Individual stocks and bonds that you choose for yourself. 2. You are considering two alternative two-year investments: You can invest in a risky asset with a positive risk premium and returns in each of the two years that will be identically distributed and uncorrelated, or you can invest in the risky asset for only one year and then invest the proceeds in a risk-free asset. Which of the following statements about the first investment alternative (compared with the second) are true? a) Its two-year risk premium is the same as the second alternative. b) c) d) e) The standard deviation of its two-year return is the same.Its annualized standard deviation is lower.Its Sharpe ratio is higher.It is relatively more attractive to investors who have lower degrees of risk aversion. 3. Tabulate and draw the investment opportunity set of the two…