5513 MID-exam Essay

With Reference to this statement, describe, discuss and illustrate the principles of portfolio theory. Your essay should include coverage of the Markowitz Efficient Frontier and the Capital Market Line.

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(b) False, the higher is a security’s beta (and not its variance), the higher is its expected return. A security’s variance is made up of two components: (i) market

Part I. Each question is worth 3 points. For multiple choice questions, use highlight or bold to mark your answers.

2. Which of the following statements about the efficient frontier is true? a) In practice, only the market portfolio is on the efficient frontier. b) The portfolios on the efficient frontier are only dominated by other portfolios on the efficient frontier. c) The efficient frontier tends to be concave. d) Several of the above statements are true. e) None of the above statements are true. The efficient frontier is a set of portfolios that minimize the standard deviation for their respective expected returns., so A is false. The portfolios on the efficient frontier are not dominated by any portfolios, so B is false. C is correct. Page 4 of 21 Please see over

Government: Commonwealth, state and government trading enterprises D. Overseas—the rest of the world 6. The risk that impacts specifically on the share price of a particular company is called: A. economic risk B. business risk C. systematic risk D. unsystematic risk 7. When investors buy and sell shares based on receiving new information on shares and markets, this is known as: A. active investment B. a diversified strategy C. a market replication strategy D. passive investment 8. To track the S&P500, a fund manager can buy: A. all the stocks in the S&P500 B. an S&P500 index fund C. a percentage of stocks that essentially tracks the index D. All of the given answers. 9. The correlation of pairs of securities within a portfolio is called: A. co-association B. correspondence C. covariance D. variance 10. The correlation between two shares: A. can take on positive values

Type the letter that represents the best answer to each of the multiple choice questions. Answer all questions in this section. Each question is worth 1 point.

Please complete these questions in groups of 2, to hand in. The grade is calculated as part of your participation grade, so participation, as with the last case, can improve your score substantially, even if your calculations aren’t all perfect!

(2) How does the riskiness of this two-stock portfolio compare with the riskiness of the individual stocks if they were held in isolation?

The Dow Jones Industrial Average (DJIA) is indeed the most publicized and extensively known stock market on the globe. Being a major contributor of the N Y S E (New York Stock Exchange) trading stocks (Ullivan, & Steven, 2003), the index shares the United States’ economy by a notably significant margin. Also, the index has been operational for long since its inception in the nineteenth century, making it the first to be quoted by other publications. Its reputation has mushroomed all over because of its understandability and reliability in the market. This paper explains the DJIA index as well as its history in the simplest terms. Also, the paper critically evaluates the index taking into consideration that it is a price-weighted index, unlike other substantial value, weighted measures like the S & P 500 index.

Thus, a sustainability report should provide a balanced and reasonable representation of the sustainability performance of a reporting organization – including both positive and negative contributions. CLP Chairman and CEO statement address this issue in a way that CLP have already proved to be a sustainable business. However, the needs and expectations of their stakeholders are evolving more quickly than before. The result is that CLP needs to anticipate, adapt and act more quickly and effectively than ever if they are to sustain their business.

Outline the similarities and differences between the Single Index Model (SIM) and the Capital Asset Pricing Model (CAPM). Justify which of the two models makes a better assessment of return of a security (25 marks).

According to the CAPM model:R_i=α+βR_m+ε, α represent the abnormal return gained by the portfolio. If the market is efficiency, the α has to be zero.

Main Result Conclusion Introduction • The market βs of Sharpe-Litner, and Breedon’s c onsumption βs show little relation of the Cross-S ectional average returns on U.S common stocks. • Empirical variables determined average returns are: – Size,