You manage a portfolio of U.S. and global stocks. You are considering replacing global stocks with short-term US Treasury securities. Explain why this is or isn’t a good move.
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You manage a portfolio of U.S. and global stocks. You are considering replacing global stocks with short-term US Treasury securities. Explain why this is or isn’t a good move.
US treasury securities are the ones which are issued by the finance department of the US.
Global stocks are those stocks which are not only if the base country in which the investor is residing but more than one country.
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- You are advising several individual investors who are interested in investing in portfolios comprised of both stocks and bonds. In preparation for the meeting with these various investors write a report that briefly discusses the following issues: 3. Why you might advise some of the investors to invest in a portfolio other than the minimum variance portfolio? 4. Why you might advise some of the investors to add foreign securities into a domestic portfolio, given that foreign securities are generally considered to be more risky than domestica) Explain why international stock might have high volatility but low betas. b) Do you agree with the following statement? And explain why. “The Capital Asset Pricing Model [CAPM] assumes that the stock market is dominated by welldiversified investors who are concerned with specific risk. “c) Illustrate how to synthesize a forward hedging strategy by using only the money markets, in orderto hedge against the foreign exchange risk. d) Use a numerical example to illustrate that when there is a large change in the interest rate, theapproximation error by using the duration and convexity rule is smaller than the approximation errorby using the duration rule only. e) Why do we say a coupon bond can be seen as a package of zero-coupon bonds? Please use anumerical example for illustration. f) If the spot exchange between Euro and pound is Euro 1.1/Pound, and the UK Guilt returns a 0.5%yield. It is also known that the Euro is expected to depreciate against the pound by 0.5%. What is…You would like to combine a highly risky stock with a beta of 2.6 with U.S. Treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market. What percentage of the portfolio should be invested in Treasury bills?
- you would like to combine a risky stock with a beta of 1.94 with US treasury bills in such a way that the risk level of the portfolio is equivalent to the risk level of the overall market. what percentage of the portfolio should be invested in the risky stock?Common stocks that are traded on the NYSE are liquid in the sense that they canbe sold and converted to cash on short notice. Are stocks a good choice for a firm’smarketable securities portfolio? Explain.For the cost of equity (stock) is it better to use the current US Treasury bill rate or a longer-termgovernment bond rate as the risk-free rate of return?
- As the investment manager of the Oman investment fund, you wish to have a well-diversified international bond portfolio? What types of risks can be reduced by investing in such a portfolioThe Knowles/Armitage (KA) group at Merrill Lynch advises clients on how to create a diversified investment portfolio. One of the investment alternatives they make available to clients is the All world fund composed of global stocks with good dividend yields. One of their clients is interested in a portfolio consisting of investment in the All world fund and a treasury bond fund. The expected percent return of an investment in the All world fund is 7.80% with a standard deviation of 18.90%. The expected percent return of an investment in a treasury bond fund is 5.50% and the standard deviation is 4.60%. The covariance of an investment in the All world fund with an investment in a treasury bond fund is −12.4. (1) Which of the funds would be considered the more risky? why? (2) If KA recommends that the client invest 75% in the All world fund and 25% in the treasury bond fund, what is the expected percent return and standard deviation for such a portfolio? what would be the expected return…based on the current variables that may impact stock demand, such as inflation, budget deficit, monetary policies, political situations, and investor's sentiment generally. Do you believe that stock prices will grow or drop this year's end based on these conditions? Justify your response using logic. Which of the following factors do you believe will have the greatest influence on stock prices?
- Suppose your client says, “I am invested in Japanese stocks but want to eliminate my exposure to this market for a period of time. Can I accomplish this without the cost and inconvenience of selling out and buying back in again if my expectations change?”a. Briefly describe a strategy to hedge both the local market risk and the currency risk of investing in Japanese stocks.b. Briefly explain why the hedge strategy you described in part (a) might not be fully effective.For the cost of equity (stock) is it better to use the current US Treasury bill rate or a longer-termgovernment bond rate as the risk-free rate of return?Does the rate you use as the risk-free rate have an impact on what market premium might beappropriate? Historically, large-company stocks have earned an average return of 12.1% per annum, while US Treasury bills and long-term government bonds have earned average returns of 3.5% and5.9% respectively.Which of the following statements about currency risk is TRUE: Group of answer choices The currency risk of an international stock portfolio is the volatility of portfolio returns It is impossible to measure currency risk for international bond portfolios The currency risk of a domestic stock portfolio is zero None of these answers is correct
