Investment Science Chapter 3 Dr. James A. Tzitzouris 3.1 Use A= 1− rP 1 (1+r)n with r = 7/12 = 0.58%‚ P = $25‚ 000‚ and n = 7 × 12 = 84‚ to obtain A = $377.32. 3.2 Observe that since the net present value of X is P ‚ the cash flow stream arrived at by cycling X is equivalent to one obtained by receiving payment of P every n + 1 periods (since k = 0‚ . . . ‚ n). Let d = 1/(1 + r). Then ∞ P∞ = P k=0 (dn+1 )k . Solving explicitly for the geometric series‚ we have that P∞ = Denoting
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Representative) Rules 2000‚ these entities are licensed and they are bound to be a member of any of the two stock exchanges. At present‚ DSE and CSE have 238 and 136 members respectively. 4. Merchant Banker & Portfolio Manager: These institutions are licensed to operate under SEC (Merchant Banker & Portfolio Manager Rules) 1996 and 45 institutions have been licensed by SEC under this rules so far. 5. Asset Management Companies (AMCs):
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model(FF) and the Fama-MacBeth model(FM) for the 201211 CRSP database using monthly returns from 25 portfolios for 2 periods ---July 1931 to June 2012 and July 1631 to June 2012. The theory’s prediction is that the intercept should equal to zero the slope should be the excess return on the market portfolio. The findings of this study are not substantiating the theory’s claim for the fact that in some portfolios the alpha is statistically significant with non zero value and in some regression models‚ the
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ROLE AND PURPOSE This subject aims to introduce to students a range of basic concepts and ideas in modern finance. After completing this subject‚ participants should know the principles involved in making investment and financing decisions‚ understand functions of financial markets and financial managers‚ and possess basic knowledge of option pricing and financial planning. This foundation course prepares students for more in‐depth studies at a later stage. LEARNING OUTCOMES Upon completion of the
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new stock to an existing portfolio‚ the higher (or more positive) the degree of correlation between the new stock and | | |those already in the portfolio‚ the less the additional stock will reduce the portfolio’s risk. | | | | | | |[iii]. |Diversification can reduce the riskiness of a portfolio of stocks.
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7-1 a. A portfolio is made up of a group of individual assets held in combination. An asset that would be relatively risky if held in isolation may have little‚ or even no risk if held in a well-diversified portfolio. b. The feasible‚ or attainable‚ set represents all portfolios that can be constructed from a given set of stocks. This set is only efficient for part of its combinations. c. An efficient portfolio is that portfolio which provides the highest expected return for any degree of
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possible portfolio risk and return combinations given the risk-free rate‚ risk and return of a portfolio of risky assets is referred to as the capital allocation line (CAL). A simplifying assumption underlying modern portfolio theory is that investors have homogeneous expectations‚ i.e.‚ they all have the same estimates of risk‚ return‚ and correlations with other risky assets for all risky assets. Under this assumption‚ all investors face the same efficient frontier of risky portfolios and will
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return is 8%. An investor constructs an optimal risky portfolio with the two stocks BBT and DIS. Let the optimal portfolio weights of DIS and BBT in the risky portfolio be 40% and 60%‚ respectively. The investor decides to construct a complete portfolio with the optimal risky portfolio and risk free asset and decides to allocate 35% of the total investment in risk free asset and 65% of the total investment in the risky portfolio. A. Compute the expected
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clients and investment strategies of the firm also highly support its original direction since it allows ZAM to diversify its portfolios and seek the return in association with investor’s requirements. Different to some other asset- management firms‚ ZAM has both institutional and individual customers who have different financial goals therefore the firm has designed portfolios to meet the needs of clients. In fact‚ Zeus Asset Management concentrates on risk–averse‚ high net worth individuals and companies
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Security Market Line In Markowitz Portfolio Theory‚ a line on a chart representing the capital asset pricing model. The security market line plots risk versus expected return of the market. The security market line is a useful tool in determining whether a given security is undervalued and/or a market outperform. If a security plots the security market line‚ it indicates a higher expected return for a given level of risk than the market as a whole. security market line A line used to illustrate
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