Peachtree Securities Case Essay

Advisors and investors would do well to pay as much attention to the expected volatility of any portfolio or investment as they do to anticipated returns. Moreover, all things being equal, a new investment should only be added to a portfolio when it either reduces the expected risk for a targeted level of returns, or when it boosts expected portfolio returns without adding additional risk, as measured by the expected standard deviation of those returns. Lesson 2: Don’t assume bonds or international stocks offer adequate portfolio diversification. As the world’s financial markets become more closely correlated, bonds and foreign stocks may not provide adequate portfolio diversification. Instead, advisors may want to recommend that suitable investors add modest exposure to nontraditional investments such as hedge funds, private equity and real assets. Such exposure may bolster portfolio returns, while reducing overall risk, depending on how it is structured. Lesson 3: Be disciplined in adhering to asset allocation targets. The long-term benefits of portfolio diversification will only be realized if investors are disciplined in adhering to asset allocation guidelines. For this reason, it is recommended that advisors regularly revisit portfolio allocations and rebalance

Risk of a portfolio (combination of shares) depends on the correlation between the expected return of every pair of shares in a portfolio. Correlation varies between +1 and -1. Thus a perfectly positively correlated portfolio would mean a +1 and a negatively correlated portfolio would mean -1. In a positively correlated portfolio the expected return would move in the same direction in the same proportion at all times, however in a negatively correlated portfolio the returns would move in the opposite direction (J Ogilvie & B Koch 2002).

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

Imagine that you were forced to work your life away with no pay and horrible conditions. You have no freedoms and you were considered property . Congratulations you are now slave, and your kids and their kids will be slaves and it goes on for every. That is exactly what Dred Scott did not want to happen to him and his wife and kids. Dred Scott was a slave taken to a free territory and thinking he was freed he sued for his freedom and his wife and kids. This case the Dred Scott Case became a wedge that drove the North and South apart before the civil war showing the different morals and terms of justice between the two. This case was seen as brutal to the Northerners sentencing a emancipated man to slavery and justice to the Southerners being able to keep one of their slaves. This case will eventually along with other spark the civil war and lead to the Civil War that is thought to have originally to keep the union together, but then changed to a battle against slavery.

2) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true?

(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 development of the Sarbanes-Oxley Act (SOX) was a result of public company scandals. The Enron and Worldcom scandals, for example, helped investor confidence in entities traded on the public markets weaken during 2001 and 2002. Congress was quick to respond to the political crisis and "enacted the Sarbanes-Oxley Act of 2002, which was signed into law by President Bush on July 30" (Edward Jones, 1), to restore investor confidence. In reference to SOX, penalties would be issued to non-ethical or non-law-abiding public companies and their executives, directors, auditors, attorneys, and securities analysts (1). SOX significantly transformed the procedures in which public companies handle internal

Diversity investment among stock markets, bounds and nationally and internationally is the best me method of maintaining the risk of investment and expanding its growth. The fourth importance is the cost of single investment; the less money an investor pay; the more financial resources will have to take advantage on future investment opportunities that expand the return. Becker’s final advice of investment success was for investors to slick with their plan. “Lethargy bordering on sloth remains the cornerstone of our investment style”, Warren Buffett. Many investors get influenced by what goes around them and the media to end their investment prematurely or get involved in risky commitment outside of their goals.

To reduce a firm’s specific risk or residual risk a portfolio should have negative covariance or rather it should have no variance at all, for large portfolios however calculating variance requires greater and sophisticated computing power. As such, Index models greatly decrease the computations needed to calculate the optimum portfolio. The use of such Index models also eliminates illogical or rather absurd results. The Single Index model (SIM) and the Capital Asset Pricing Model (CAPM) are such models used to calculate the optimum portfolio.

The pioneer and elegant model given by H. Markowitz [2] and J. Tobin [3], analyzed in his research that risk reduction by diversification of portfolio closely depends upon correlation of mean returns of individual securities of portfolio. H. Markowitz also analyzed about portfolio diversification that if there is low correlation between two securities then there are more portfolio risk diversification benefits. While correlation between securities shows direct relation with portfolio diversification benefits but the argument

As indicated by the case study S&P 500 index was use as a measure of the total return for the stock market. Our standard deviation of the total return was used as a one measure of the risk of an individual stock. Also betas for individual stocks are determined by simple linear regression. The variables were: total return for the stock as the dependent variable and independent variable is the total return for the stock. Since the descriptive statistics were a lot, only the necessary data was selected (below table.)

If the firm remains a partnership could the firm continue to compete on an equal footing with its competitors, would they be able to retain key employees? How would tangible as well as intangible assets be valued in its stock price as a public firm?

Diversification is a method of investing that been shown to increase portfolio return while reducing portfolio risk as measured by standard deviation. This method specifically increases the efficient frontier for investors. The challenge to an investing firm is an appetite by its customers for an ever increasing efficient frontier. One area to explore to obtain this increase is through further diversifying through international diversification.

The systematic risk of a portfolio is the weighted sum of the systematic risk of each component. One can only obtain low systematic risk by choosing securities with low systematic risk for your portfolio. Unsystematic risk is the variation in the stock’s return that cannot be explained by the variation in the market index. For very large portfolios unsystematic risk can be almost eliminated. In this situation the risk each security contributes to the portfolio is approximately equal to its systematic risk or Beta. Therefore, the relevant risk for an individual security held within a well-diversified portfolio is its Beta. Portfolio is the relevant risk is the standard deviation. For example an investor invested all his money in a company’s stock. Then the relevant risk is the standard deviation because the portfolio consists of a single security. On the other hand, the investors holding of the company is a small fraction of a large diversified portfolio. Then the relevant risk is the Beta (Pierre, Gabriel and Albert, 1987).

Company/Industry-Specific Risk. The risk is inherent in each investment, however, can be reduced through diversification. The Fund’s focus on the specific sompany or industry to the exclusion of other sectors exposes the Fund to greater market risk and potential monetary losses than if the Fund’s assets were diversified among various types of stocks by owning stocks in different companies and in different