Benefits of diversification Sally Rogers has decided to invest her wealth equally across the following three assets: . What are her expected returns and the risk from her investment in the three assets? How do they compare with investing in asset M alone? Hint. Find the standard deviations of asset M and of the portfolio equally invested in assets M, N, and O. ». Could Sally reduce her total risk even more by using assets M and N only, assets M and O only, or assets N and O only? Use a 50/50 split between the asset pairs, and find the standard deviation of each asset pair. a. What is the expected return of investing equally in all three assets M, N, and O? % (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Asset M Retum States Boom Probability 32% 11% 8% Normal 49% Recession 19% - 1% Print Asset N Return 22% 13% 2% Done Asset O Retum - 1% 8% 11% - X

Benefits of diversification Sally Rogers has decided to invest her wealth equally across the following three assets: . What are her expected returns and the risk from her investment in the three assets? How do they compare with investing in asset M alone? Hint. Find the standard deviations of asset M and of the portfolio equally invested in assets M, N, and O. ». Could Sally reduce her total risk even more by using assets M and N only, assets M and O only, or assets N and O only? Use a 50/50 split between the asset pairs, and find the standard deviation of each asset pair. a. What is the expected return of investing equally in all three assets M, N, and O? % (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Asset M Retum States Boom Probability 32% 11% 8% Normal 49% Recession 19% - 1% Print Asset N Return 22% 13% 2% Done Asset O Retum - 1% 8% 11% - X

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Catherine is a savvy investor with investments across many different instruments, scattered in many different accounts. She also has several different investing goals from short-term to long-term. But she is smart 5 enough to take into consideration the correlation between her assets. She allocates the assets according to her risk-return profile across different asset classes, viewing the investments as comprising a single portfolio with a single measure of risk. What behavioral trait would represent the opposite way of Catherine approaches investing? A. Conservatism bias B. Mental accounting C. Overconfidence bias D. Framing bias The chart below illustrates most clearly which type of pattern? 21 19 E. 17 15 13 11 A. Triangle D. 9 7 B. Triple top Feb 96 C. Head and shoulders D. Double bottom A. B. Aug Feb Aug Feb Aug Feb Aug 96 97 97 98 98 99 99 B. Only I, II, and IV are correct. All of the above C. Only II, III, and IV are correct. Technical analysis aims to : 1. Identify and describe…
Describe an investment strategy that tries to grow money. You can only use for the description terms like such as day trading, short term and long term investing, risk- averse, risk tolerant etc.
Time value of money question: Envision you are approached with an investment opportunity. You aregiven two alternatives to choose from. Investment A has a higher interest rate than Investment B.Investment A requires a greater number of periods until you receive the benefit than Investment B. Applying concepts from the PV = FV/(1+r)^n (the NPV formula and discounting) describe the process ofhow you would decide which investment option would be better to invest in. Discussing how changes inboth the interest rate and the number of periods would affect this decision will help.
basic economics can give us the sniff test. It provides us with a basic set of rules to which any decent investment advice must conform." These "set of rules" include all of the below EXCEPT THIS ONE. Which of the below is NOT one of these rules for wise investment? Group of answer choices Invest for the long run. Take risk, earn reward,. Engage in high risk short-term trading. Diversify your investments.
The CFO has asked you to compute Project Delta's initial investment using the information currently available to you. He has offered the following suggestions and observations: • A project's IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows-when the cash flows are discounted using the project's IRR. • The level of risk exhibited by Project Delta is the same as that exhibited by the company's average project, which means that Project Delta's net cash flows can be discounted using Blue Hamster's 9% WACC. Given the data and hints, Project Delta's initial investment is and its NPV is (rounded to the nearest whole dollar). A project's IRR will if the project's cash inflows increase, and everything else is unaffected.
What are the main concerns about investing? Name three investment-related risks that someone would anticipate in the future. How will they manage those risks?
1.Do the stock and bond investments fall within Stephanie’s investment guidelines? Show appropriate computations in support of your response. 2. Will Stephanie have enough funds for her investment in stocks and bonds, when needed? What will be the surplus / shortfall, if any?
How do I/What is the process for solving this problem: You are an investment manager for Simple Asset Management, a company that specializes in developing simple investment portfolios consisting of no more than three assets such as stocks, bonds, etc., for investors who like to keep things simple. One of your more popular investments is called the All World Fund and is composed of global stocks with good dividend yields. A client is interested in constructing a portfolio that consists of the All World Fund and the Treasury Index Fund, which consists of U.S. Treasury securities (government bonds). You calculate a 7.8% expected return on the All World Fund with a return standard deviation (a measure of risk) of 18.90%. The expected return of the Treasury Index Fund is 5.50% with a return standard deviation of 4.6%. To analyze the relationship between the two investments, you also calculate the covariance between the two of –12.4. Expected return on a portfolio of…
Read the exerpt below and then answer the questions: The idea behind diversification is that if you spread your investment dollars around to various investments, if one goes down, the others will protect you from losing everything and if you diversify perfectly, the other investments may move in the opposite direction, so that your gains offset your losses. So maybe some of your investments produce positive returns, while others are losing money. But what if a particular stock produces huge gains? Consider Twitter. Its IPO was at the beginning of Nov 2013 and the stock opened at a price of about $42. By the end of the year 2013, the stock was trading at $69 a share. So, if you had $100,000 to invest and you put it all into Twitter at the IPO, your investment was worth about $164,000 at the end of 2013 – a gain of $64,000 in about 2 months! But what if you had diversified and put only $20,000 in Twitter and you invested $80,000 in other stocks? At the end of 2013, your Twitter stock…
Which of the following statements is true? Multiple Choice When NPV is 0, the IRR is equal to the discount rate. When NPV is 0, the investment is not making a profit. In calculating IRR, we make the assumption all cash flows are reinvested at the discount rate. NPV is a good measure to use when comparing investments of different sizes.
From the sentences below, choose the one that DOES NOT fit in the concept of diversification. * An investor should investment her/his money in different types of securites because by doing so she/he will be able to create a compensation effect in which the less good performance of some investments can be compensated by the good performance of other investments. A portfolio constructed of different kinds of investments will, on average, have higher returns and a lower risk than any individual investment found within the portfolio. A very well diversified portfolio should be composed by different types of securities, from different sectors and from different geographical locations. Do not put all your eggs in one basket. In order to have the maximum return, an investor should invest all her/his money in the top 5 best stocks of the market.
You've heard the expression "no pain, no gain"? In the investment world, the comparable phrase would be "no risk, no reward." How you feel about risking your money will drive many of your investment decisions. The risk-comfort scale extends from very conservative (you don't want to risk losing a penny regardless of how little your money ears) to very aggressive (you're willing to risk much of your money for the possibility that it will grow tremendously). As you might guess, most investors' tolerance for risk falls somewhere in between. If you're unsure of what your level of risk tolerance is, this quiz should. 10. Your attitude toward money is best described as: (a) a dollar saved is a dollar earned, (b) you've got to spend money to make money, (c) cash and carry only, (d) whenever possible, use other people's money.

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