Got a tricky question? Receive an answer from students like you! Try us!

Portfolio Theory and Investment Analysis - Term Paper Example

Only on StudentShare
Undergraduate
Term Paper
Finance & Accounting
Pages 8 (2008 words)

Summary

The market capitalization was 30 million pounds As given, the return on the three-asset portfolio that consists of equities, bonds and cash are given below as follows; Instrument Upto 2007 2007-now Equities 60% 40% Bonds 30% 40% Cash (treasuries) 10% 20% Where: a=equity b=bonds c = cash (treasuries) I…

Extract of sample
Portfolio Theory and Investment Analysis

wa + wb + wc = 1. E(rp) = waE(ra) + wbE(rb) + wcE(rc ) 0.6(-0.2) + 0.3(0.1) + 0.1(0.04) = -0.086 Hence the strategy before the 2007 economic crisis would have realised an expected return of -8.6% on investment. The strategy adopted from 2007 onwards in the light of the crisis would realise: E(rp) = waE(ra) + wbE(rb) + wcE(rc ) 0.4(-0.2) + 0.4(0.1) + 0.2 (0.04) = -0.032 The strategy adopted after 2007 would realise an expected return of -3.2% on investment. As a result, the benefit of the strategy adopted from 2007 would be a reduced lose of 5.4% II. Advisability of investing more funds in UK equities. With the managers of the funds thinking of investing more funds into equity in the market, it is important for the managers to analyse the UK equities in a risk-return relationship. Hence when analysing the risk premium of the equity with the rest of the asset class, the return differential will be attributed to the difference in the risk associated with equity as opposed to bonds. The equity line will be normally "shakier" than the bond line. As evident from the data provided, Wealth invested in equity for the past 20 years has been more volatile than wealth invested in bonds (the UK equity having a risk of 16% as compared to 5% for bonds and cash for 0.3% in derivatives). Despite the higher return, the risks were higher as well. ...
Download paper
Not exactly what you need?

Related Essays

Investment analysis
Efficient Markets Theory The theory is based on the assumption that information available in the securities market such as price levels is extremely efficient in reflecting the performance of the assets in the market. The general view regarding the theory is that information spreads in the shortest time possible and gets incorporated in the prices of assets in the market (Hughes, 2005, p. 118). The theory disputes the ability of investors to use historical information in determining the fair value of securities in the market. I would like to point out that the conventional wisdom of wisdom may…
5 pages (1255 words)
Funding Healthcare System, Sharing Risk and Portfolio Theory
10). These processes are vital for the policy makers as well as planners who often face challenges in designing health care funding systems towards meeting the specific social, economics, and political objectives. Many countries are ever under constant pressure in issues related to social policies since they often experience increased expenditure and scarce resources. Nonetheless, the policy makers must analyze the following three options: increasing health care funding and containing costs or both. The heath care funding and expenditure crisis have introduced radical changes in the…
15 pages (3765 words)
Financial Investment Analysis
This, particularly, must be challenging for companies with global operations that may have their cash balances fragmented across different geographies, banks, and bank accounts which make accessing cash difficult (Huang 2003). In this regard, this paper seeks to address the issue of efficient diversification as a comprehensive strategy in liquidity and stock return. Liquidity of an asset explains the ease with which an asset can be sold after its purchase without incurring further losses and how risks can be mitigated if not minimized (Baker 2006). The various losses that could be incurred may…
5 pages (1255 words)
Mean Variance Analysis - Portfolio Theory and Diversification
The most common objective of diversification is “not to put all eggs in the same basket”. Diversification may have different forms. A well-diversified portfolio is the one in which all the constituents do not have any relationship among each other (Fabozzi et al, 2002). That relationship can be measured by using statistical technique of correlation. Correlation actually measures how much a constituent is associated or linked with the other constituent such that in case if the correlation is equal to or near to 1 among two constituents, then those two constituents would be called as highly…
6 pages (1506 words)
Hewlett Foundation Case Study
The asset allocation policies are formulated by the foundation, internally managed but uses external manager to invest the portfolio. The external managers can either invest 100% of the asset in indexed instruments or invest partially depending on the allocation method. There are four methods that the foundation uses in evaluating the performance of its portfolio. To begin with, it uses a benchmark with which it compares the performance of each asset. If the portfolio outperforms its benchmark, then it is a worth portfolio to invest in. on the other hand, if its performance is less than that…
4 pages (1004 words)
Investment Portfolio for the Susan Griffin
Investment Portfolio for the Susan Griffin …
3 pages (753 words)
Stock Investment Analysis
What each and every investment requires is to perform well and fetch good returns. This is made possible when the business or investment is able to consistently build and maintain a long term growth on capital. The FLCSX fund tries to meet this general requirement through the investment in large capitalization stocks across the world (Vishwanath, & Krishnamurti, 2009). These large capitalization companies are the companies that are firmly established and have a high return on their capital. The FLCSX fund maintains a massive 80% of its investments in these kinds of companies (Elton, 2010). In…
4 pages (1004 words)