Reference no: EM131230143 , Length: word count:2500
Assignment
Read the brief and instructions thoroughly.
Write a report which addresses the questions (a to f) below. Where relevant, base your analysis on the data provided.
Table 1: Asset returns on different asset ¬classes over the period 1990 to 2010
|
Year
|
Australian Shares % return (ex dividends)
|
Australian Bonds % return
|
Cash Rate % average return
|
International Shares % return
|
|
1990
|
-20.1
|
12.1
|
14.8
|
-18.7
|
|
1991
|
22.2
|
9.4
|
10.3
|
16
|
|
1992
|
-6.0
|
8.9
|
6.5
|
-7.1
|
|
1993
|
39.1
|
6.7
|
5.1
|
20.4
|
|
1994
|
-9.2
|
10.0
|
5.4
|
3.4
|
|
1995
|
16.5
|
8.2
|
7.5
|
18.7
|
|
1996
|
7.2
|
7.4
|
7.0
|
11.7
|
|
1997
|
7.9
|
6.1
|
5.4
|
14.2
|
|
1998
|
7.7
|
5.0
|
5.0
|
22.8
|
|
1999
|
13.5
|
7.0
|
4.8
|
23.6
|
|
2000
|
2.9
|
5.5
|
6.0
|
-14.1
|
|
2001
|
2.6
|
6.0
|
4.9
|
-17.8
|
|
2002
|
-9.6
|
5.2
|
4.6
|
-21.1
|
|
2003
|
8.7
|
5.6
|
4.8
|
30.8
|
|
2004
|
22.8
|
5.3
|
5.3
|
12.8
|
|
2005
|
15.7
|
5.2
|
5.5
|
7.6
|
|
2006
|
19.8
|
5.9
|
5.8
|
18.0
|
|
2007
|
17.9
|
6.3
|
6.4
|
7.1
|
|
2008
|
-45.8
|
4.0
|
6.6
|
-42.1
|
|
2009
|
34.1
|
5.7
|
3.2
|
27.0
|
|
2010
|
2.2
|
5.5
|
4.4
|
9.6
|
Source: Brailsford et¬ al. 2012, RBA 2016, viewed 24 March, 2016, https://www.rba.gov.au/statistics/cash-rate/, MSCI World index.
a. Briefly discuss the four asset classes in Table 1. Using the data from Table 1, calculate the Arithmetic Mean (AM), Geometric Mean (GM) and Standard Deviation (σ) of re-turns of each of the four asset classes. Briefly discuss the risk-return characteristics of each asset class with reference to these measures.
b. Construct an efficient portfolio. Assume the risk free rate over the period is 6.4%. Calculate the Efficient Frontier and Capital Allocation Line (CAL) for three asset classes: Australian Shares, Australian Bonds and the Australian Cash Rate using the Excel Solver Tool (see prescribed Textbook Chapter 7, Appendix A for guidance). You will also need to calculate and provide 'Bordered Covariance' and 'Correlation Matrices'. Repeat the above steps with all four asset classes i.e. include International Shares and add the new efficient frontier and CAL to the previous graph. Discuss the implications of the -addition of international shares on the efficient frontier and CAL compared with the first three assets efficient frontier and CAL.
c. Briefly explain how fiscal and monetary policy can influence an¬ economy. Discuss the three main factors that determine how sensitive a firm's earnings are to the business cycle.
d. Using the Black-Scholes formula and the cumulative normal distribution (i.e. see Table 21.2, p. 740 of the prescribed textbook), compute the call and put option prices ¬using the data from Table 2.
Table 2: Option information
|
Stock price, S0
|
39
|
|
Exercise price, X
|
35
|
|
Interest rate, r
|
0.053 (5.3% per year)
|
|
Time to expiration, T
|
0.5 (6 months or half a year)
|
|
Standard deviation, σ
|
0.3 ( 30% per year)
|
First compute d1 and d2, then using Table 21.2, find the N(d)'s and use interpolation if needed to find the exact call and put prices.
e. Assume the current futures price for gold ¬for delivery 10 days from 8 February is US-$1,197.90 per ounce. Suppose that from 9 February 2016 to 22 February 2016 the gold -prices were as in Table 3. Assume one futures contract consists¬ of 100 ounces of gold. Also, assume the maintenance margin is 5% and the initial margin is 10%. Calculate the daily mark-to-market settlements for each contract held by the long position. Briefly discuss basis risk (i.e. you can give an example if it makes it easier to discuss) [Hint: see Chapter 22 and examples 22.1 and 22.2 of the textbook].
Table 3: Gold prices in US Dollars per ounce
|
Day
|
Futures Price (US Dollar per ounce)
|
|
8 Feb 2016
|
1197.90
|
|
9 Feb 2016
|
1198.70
|
|
10 Feb 2016
|
1194.70
|
|
11 Feb 2016
|
1247.90
|
|
12 Feb 2016
|
1239.10
|
|
15 Feb 2016
|
1239.10
|
|
16 Feb 2016
|
1207.90
|
|
17 Feb 2016
|
1211.10
|
|
18 Feb 2016
|
1226.10
|
|
19 Feb 2016
|
1230.40
|
|
22 Feb 2016 (delivery)
|
1209.50
|
Briefly discuss the main differences between options and futures.
f. 0Evaluate a fund's portfolio performance in terms of the market (e.g. outperformance -or underperformance) using the Sharpe ratio, Trey nor measure, Jensen's alpha, Information ratio and the M2 measure using data from Table 4. Assume -the risk-free rate is 5.5%. Briefly discuss each of the five methods.
Table 4: Portfolio performance data
|
Fund Portfolio
|
Market
|
|
Average return, x¯
|
12%
|
8%
|
|
Beta, β
|
1.15
|
1.0
|
|
Standard deviation, σ
|
33%
|
25%
|
|
Tracking error (nonsystematic risk), σ(e)
|
14%
|
0
|
Note: This assessment is an individual assessment (i.e. this is not a group assessment). Please ensure you avoid collusion and¬ other practices which compromise individual assessment work.
This assessment is an individual assessment (ie this is not a group assessment).Please ensure you avoid collusion and other practices which compromise individual -assessment work.
Words:- 2500
Reference:- Harvard 10
|
Paper topic-web services
: The reason I picked Web Services as a point, on the grounds that the Web is extending increasingly each and regular. You can now use programming, for example, Microsoft office on the web in stages, for example
|
|
Defined and included in the organization irp
: You are to choose an organization, such as a school district, state/federal agency, or hospital,, and propose a set of roles and responsibilities to be defined and included in the organization's IRP.
|
|
Testing process to measure performance of handheld devices
: What could Census Bureau management and the Harris Corporation have done to prevent this outcome?
|
|
What is meant by a stock split effected in the form
: What is meant by a stock split effected in the form of a dividend - From an accounting viewpoint, explain how the stock split effected in the form of a dividend differs from an ordinary stock dividend.
|
|
Construct an efficient portfolio
: Construct an efficient portfolio. Assume the risk free rate over the period is 6.4%. Calculate the Efficient Frontier and Capital Allocation Line (CAL) for three asset classes: Australian Shares, Australian Bonds and the Australian Cash Rate using..
|
|
Secure data in today systems
: What methods/facilities are available to secure data in today's systems? Have these methods proved to be adequate? If not, what changes would you recommend to make these methods more secure? 3.
|
|
Management functions organizing usually precedes planning
: Of the four primary management functions organizing usually precedes planning. Planners need not have significant practical experience within the organization if they have good human relations skills. The high failure rate of new businesses seems pri..
|
|
What were the benefits of the new system
: List and describe the information requirements of HPC's new management system. What problems was the new system designed to solve?
|
|
Serialization delay is a serious problem
: Serialization delay is a serious problem. Tutor, with more and more use of bandwidth form the subscribers, would it be more a challenge to resolve serialization delay? Please explain
|