Essay On How Would You Explain To Mary The Relationship Between Risk And Return

A higher perceived risk would yield similar results to an inflation increase. Prices would decrease and required rates of return would increase. A decease in risk would increase the price and decrease the require rate of return.

Billy should a diversified portfolio, but buy more health and technology stocks because they are at low prices and are more bullish. For example, IBM is at $149.25. The 52 week low is 116.9 and the 52 week high is 176.3. If Billy buys 10 shares, he should have at least a 2% (total purchase price ÷ money gained/loss x 100) expected return on the stocks. If Billy buys 10 shares of JNJ at $108.97, he would get at least 3% return. The 52 week low for JNJ is 81.79 and the 52 week high is 109.84. This shows that JNJ is closer to its high, so Billy would most likely make a dividend off of

E.g. A combination of investments in Umbrellas and Ice Creams will eliminate the risk of one another, i.e., the low returns from ice creams in rainy season will be compensated by the umbrella sales. High returns in one industry, in this case, always offset low returns in the other to give a positive return with certainty because returns on the two assets are inversely correlated.

σA = 0.3 × (0.07)2 + 0.4 × (0.06)2 + 0.3 × (0.08)2 − (0.021)2 = 0.004389,

The lower the risk that is associated with an investment, that investment usually has a potential for lower returns. Conversely, if there are high levels of risk associated with an investment, and in turn a potential for a higher return.

4. Given that both Joe and Mary Garner are in their mid-30s and want to retire when they reach age 65, what type of investment goals would be most appropriate for them?

In September 2003, John DeRight and Judy DeRight, both cousins, decided that they both wanted to invest in real estate. The cousins felt that real estate would allow them the “benefits of diversification, protection from future inflation, and tax advantages.” John, a risk averse person, was a retired businessman and was willing to spend $9 million in this investment. John would rely on stock dividends and other income that totaled approximately $1 million. On the other hand, Judy was a risk tolerant businesswoman who owned her own chemical company and had $16 million of funds available for investment. Judy’s after-tax income came out to be approximately $1.1 million.

An investment philosophy is one’s approach to tolerance for risk in investments. It may be conservative which means you accept very little risk and are generally rewarded with relatively low rates of return. Another investment philosophy is moderate also known as risk indifference, this means one accepts some risk as they seek capital gains through slow and steady growth. Lastly, one may have an aggressive investment philosophy or be more of a risker seeker. Often times, people strive for a very high return by accepting a high level of risk. Going into the game, we were informed that like

2. What would have been Martin’s return for years 2000, 2001, and 2002 if his portfolio had remained with its initial holdings?

(1) Calculate the expected return (rp), the standard deviation (p), and the coefficient of variation (CVp) for this portfolio and fill in the appropriate blanks in the table.

and she receives reasonable dividends annually. She has substantial cash balances in cashable GIC for $412,920 with the interest of 1.9% annually and in her chequing account she has $141,067 without interest. She also has medical and life

Explain why investors may be attracted to high-risk investments such as exchange-traded derivatives, global funds, and other complex investment vehicles.

mix of assets? What benchmark return might they expect for their current level of risk?

the same sum on a false hunch regarding an AIDS cure, he or she would

9.     She got the 51% of the equity where as she only had to invest 25% of the total amount being invested