With the combination of these securities in the portfolio investors can minimize their risk without sacrificing their expected return. Ans 1b In table 1, we can see correlation coefficients of five different funds, if we want to invest in any of the two funds in the portfolio with minimum risk. For example Aviva Property and HSBC Asian Growth with correlation coefficient 0.10 can minimize the risk without sacrificing any of their expected return. In such a combination of these funds the risk will be diversified effectively without decreasing the level of expected return whatsoever. Ans 1c We have a portfolio of two funds, Aviva property and HSBC Asian Growth. We have also combined other funds and analyzed their risk exposure and found that their portfolio has minimum levels of risk. This investor is investing 50% of the cash in both the funds minimizing its risk without change in the expected return. Aviva property has risk of 2.3% with negative return while HSBC shows 6.5% risk with a good level of return. If investors will invests separately in these funds, the risk will be more but in other combinations the risk will also be greater. Ans 1d i) As shown in figure 1, the curved line denoted with (a) is referred to as Efficient frontier while the straight line denoted by b is referred to as capital market line. The other points mentioned in the figure are, D which is the risk free rate and C is the market portfolio. ii) When an investor has a portfolio at point E as shown in figure 1, where return is also decreasing but not that much with the risk. Every investor wants to hold the C point where only market risk is to be faced, but all the other risks are diversified and at point E the risk associated with the portfolio is high but both systematic and unsystematic risk are in its way. Only unsystematic risk is diversifiable but other risks can also be shown at beta. iii) Every investor tries to reduce the risk associated with its portfolio. If the investor is willing to accept 10% of risk as shown in figure 1 it is difficult to get good results. As the risk is high and return is also high, this position becomes more sensitive to the market fluctuations. At this position a slight change in the market will affect the portfolio more. Investors can go for the risk free return but it is usually unrealistic as allowances for the differences in borrowing makes the model more complicated. Ans 2a In US-style option, the buyer has the right to exercise at any time before the expiry of the option and counterparty must follow in the part of the buyer of option for execution. Counterparty doesn’t have any right to deny the execution of the option before the expiry of the risk associated with the counterparty. The reason for counterparty risk is basically due to the credit risk of the option writer (Klein and Yang 2010, p.1) Ans 2b The biggest advantage of using options contracts is that it gives stability and security to the investors and the traders. This makes them contribute more in the market operations and also greatly contribute to the economy. It reduces the risks involved and also increase investors confidence thus they buy more options the agents sells. Since unsystematic risk is normally unverifiable, the risk occurs due to external factors which are unpredictable. In order to minimize
Ans 1a Every investor in the market wants maximum return on its investment with minimum risk as every return on assets associated with a risk in the stock market. This portfolio can be said to be sustainable and effective in the long run. The income on the securities will either increase or decrease depending with the risk associated with it…
For example, with Barclays PLC in 2009, 40% of the banks income came from traditional interest bearing loans while 30% came from financial services and 30% came from direct investment gains. (Shipman, 2011, p. 9) Financial sales staff within a large investment bank such as Barclays could potentially enjoy a significant competitive advantage in the marketplace by knowing the advance order patterns of their customer base and using this insider knowledge for “front-running” market trades in stocks, bonds, or commodities.
Present value of cash flow approach to security valuation has three subdivisions of measuring the value of an investment. These are the present value of dividend, present value of free cash flow to equity, as well as the present value of operating cash flow.
The MFN clauses connect investment accords by making sure that the parties to a treaty confer treatment favorably no less than the treatment they confer under other treaties in matters embraced by the clause. Thus, MFN clauses have become an essential tool for economic liberalization in the matter of investment.1 Further, by granting the investors the right in a country's MFN clause for the same treatment no less favourable than that of a country's major partners, MFN forestalls economic changes that would arise by way of more country-by-country liberalization.
The paper begins by providing an overview on the various investment types and afterwards concentrates on evaluating which one is a better investment vehicle by weighing their advantages and disadvantages with respect to their various tax implications.
The company uses the straight-line method to depreciate assets and estimates its cost of capital at 18%. Because of capital rationing, only one project can be accepted. To calculate depreciation expense on a fixed asset with a salvage value, the depreciable value of the fixed asset is divided by the life of that asset.
First is the general economic conditions i.e. the discount rate will increase during periods in which the inflation rates are high or when the foreign exchange rates are volatile (Bierman & Smidt, 2004). The second factor that influences this rate is the marketability of a firm’s security. Firms whose securities are on high demand will experience a decline in their discount rates.
Fundamental analysis deals not only with the stock but the industry itself and the economy as a whole.
While evaluating quantitative factors, some of the fundamental questions that analysts usually ask are: where the company stands in terms of
In the 21st century, information and communication technologies can be said to be in vogue. This is because the government is using ICT in a bid to promote their services that they perform online. However, the available technology is just but one element on the entire
Working for such an institution will broaden my view of all issues related to global investment banking. The diversity in the workforce of the UBA Bank encourages networking with individuals of different
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