Case Study: Assessing Asset X and Y

15. Investment A has an expected return of $25 million and investment B has an expected return of $5 million. Market risk analysts believe the standard deviation of the return A is $10 million, and for B is $30 million (negative returns are possible here).

F) Plot the attainable portfolios with Expected return on the y-axis and Risk on the X-axis. Be sure

Decision Making Area 3:Investment Decisions * Table of Articles * Summary of Articles * Observations * Conclusion

a. Calculate the expected return over the 4-year period for each of the three alternatives.

Give an example. (5 marks) Briefly discuss whether the short-term differences between applications in (a) are removed when the investment is sold. (3 marks) Briefly suggest reasons why short-term differences may not be irrelevant. (2 marks)

Part B: How might each of the following concepts affect the results of the study?

Question 6. The mean return for the Vanguard Total Stock Index is 20.8 while the mean return for the Vanguard Balanced Index is 12.9 (with bonds). Based on this data you would conclude that bonds do not reduce the overall risk of an investment portfolio since the mean return was actually less when the porfolio has bonds in

its returns, absolute and relative risks, as well as its risk relative to a benchmark index. The

The regression that we performed in excel for both stocks yielded a beta of .73576 for Reynolds, and a beta of 1.4198 for Hasbro. In question 2 we learned that although Reynolds stock was riskier independently, adding it to the portfolio made it more diversified compared to adding Hasbro, due to the fact that it was less correlated to the market portfolio. Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Therefore, since the beta of Reynolds is lower than Hasbro, our beta calculations align with the fact that Reynolds stock makes the overall portfolio less risky. This finding is also intuitive when considering the nature of the companies; Reynolds is a Tobacco company meaning that is should be less sensitive to changes in market conditions than a toy company like Hasbro.

e. Suppose you created a two-stock portfolio by investing $50,000 in High Tech and $50,000 in Collections.

d. What would be the investor 's certainty equivalent return for the optimally chosen combination? 2. Consider an investor who has an asset allocation of 50% in equities and the rest in T-Bills. Suppose the expected rate of return on equities is 10%/year and the standard deviation of the return on equities is 15%/year. T-Bills earn 6%/year. a. What is the implied risk aversion coefficient of the investor?

2. Calculate the expected rate of return on each of the five investment alternatives listed in Exhibit 13.1. Based solely on expected returns, which of the potential investments appear best?

Hill Country Snack Foods Company manufactures, markets, and distributes snack foods and frozen treats throughout the United States. Hill Country is overall well performed company. Sales, Net Income, ROE and ROA had increased at a steady rate. Company mainly focused on maximizing the shareholder value by the CEO and other management’s managerial philosophy. Currently, Hill Country uses a risk adverse strategy to choose their business or project. Hill Country’s industry is high competitive but it kept going well with cost efficiency and

The CAPM model can be used to analyze the performance of a portfolio of investments. The model should be calculated by comparing the return of assets (Ri) minus the return of risk-free cash (Rf) of the fund against those numbers of a known index with historical data (Rm). With least-squares regression, a straight line has to be drawn through the points to finish the model. Alpha represents the point where the graph starts and beta the slope of the regression line. Alpha is the number that represents the fact of how well the fund did against the CAPM model. A positive alpha means the fund did better than CAPM predicted and negative the opposite. R² represents the ‘fit’ of the

The assets of an association comprise of individuals, materials, and gear. Associations regularly have constrained assets; consequently, exchange offs on what venture assets are exhausted and when are made each day inside associations. An asset assignment arrangement is an imperative device in compelling administration of rare assets. The planning of the need of those assets can be and ought to be resolved inside the venture plans. An asset arrangement, which depicts the kind of asset required and the planning of that need, is basic to compelling asset administration. As the undertaking plan changes, the asset arrangement should likewise be sufficiently adaptable to conform as these progressions happen.