Filmore Enterprises Essay examples

1416 Words Oct 17th, 2012 6 Pages
Filmore Enterprises Foundamental Concepts
1. a. See the attachment (expected rate of return) b. Based soly on expected returns, investment on CPC appears the best, for it has 9.70% expected returns, yet the investment on MORELY appears the cost, which has only 5.70% expected returns. c. Rate of return is mainly connected with the beta coefficient, which means if the rate of return is relatively higher, then the company will have higher risk. Judging from table1 in the attachment, CPC with higher rate of return(9.70%) has higher beta coefficient(1.53%), which means it might be the most profitable one, but the risk is high, while MORELY has the lowest rate of return(5.70%)with the risk of -0.77% (it’s riskless). As for EAT, the
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a portfolioA is dominated by another portfolio if it has a greater expected gain and a lesser risk than A. So, for those six assets in table1, the main reason which caused the discrepancies are the value of risks and returns.

4. a. See the table 2 from the attachment. b. See the table 2 from the attachment. c. If i formed another portfolio composed of CPC and EAT, for example, if i put additional stocks and bonds in the economy, the risk is actucally getting lower; In CPC-Morely portfolio, d. The expected return and standard deviation will change as the portfolio mix changes.( see the assumption portfolio on the attachment).

5. Check the table5-2 in the attachment(by the PORTSIZE)
if the investor adds more and more randomly-selected stocks to the portfolio, the risk will be lower, because as you can see from the graph, with the number of stock added into the market, the portfolio standard deviation is reducing gradually and because portfolio standard deviation is a tool to measure risk, so the risk is reducing at the same time.

6. a. Diversification is actually like “don’t put all your eggs in one basket”, hold one stock is risky, but on the other hand, investors won’t lose all of their money because of that one stock, investors holds more stock has low risk but they will loss most of their money if the company had bad performance. So, Dropping the basket will break all the eggs. Placing each egg in a different basket is more

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