Recommend two risky investments for his portfolio

Assignment Help Financial Management
Reference no: EM131348432

1. Mr. W grows concerned when you recommend two “risky” investments for his portfolio. “Look at the size of those standard deviations!”, he says. “One of those is risky enough, if I own them both; I’m taking on even more risk.” Explain why this may not be the case. Under what circumstance would he be correct? Be sure to address the issue of covariance/correlation.

2. After you eloquent explanation, Mr. W figured he’d read up on MPT. After learning about the Sharpe CAPM, he tells you he wants a high beta portfolio because that will get him more return. He says that Sharpe’s CAPM implies that more risk=more return. Is he right or wrong? Explain

Reference no: EM131348432

Questions Cloud

Calculate the effective length of the conductor : A conductor, 0.4 m long, lies between two pole pieces, with its length parallel to the pole faces. Determine the force exerted on the conductor, if it carries a current of 30 A, and the flux density is 0.25 T.
Marketing manager of jewelry cleaning product : You are the new marketing manager of a jewelry cleaning product specially formulated for cleaning precious stones, jewelry, and watches. The product is sold through two large department store chains, which receive a 50% retailer margin. The product’s..
Calculate the level of price : Calculate the level of price, output and the amount supplied by each firm that arise inthe equilibrium. Provide a labeled diagram.
What is the minimum possible risk of portfolio : Suppose stock A has an expected return of 5% with a standard deviation of 15%, and stock B has an expected return of 8% with a standard deviation of 20%. Their correlation is -1. What is the minimum possible risk (standard deviation) of a portfolio o..
Recommend two risky investments for his portfolio : Mr. W grows concerned when you recommend two “risky” investments for his portfolio. “Look at the size of those standard deviations!”, he says. “One of those is risky enough, if I own them both; I’m taking on even more risk.” Explain why this may not ..
What is the company target debt–equity ratio : Goodbye, Inc., recently issued new securities to finance a new TV show. The project cost $13.3 million, and the company paid $655,000 in flotation costs. If the company issued new securities in the same proportion as its target capital structure, wha..
What is incremental termination cash flow of replacement : Gemco, Inc. is currently considering the replacement of an existing machine. The new machine costs $1.3 million and requires installation costs of $10,000. The existing machine can be sold currently for $410,000 before taxes. It is three years old, h..
Comment on the disclosures-what are the possible breaches : Comment on the disclosures, responses to SGX queries and unusual trading in Xpress shares. Are there possible breaches in listing and securities laws in Singapore, and if so, what are the possible breaches?
Relationship between shareholders-board and management : Comment on the relationship between the shareholders, Board and management of Xpress before and after the entry of the new investor. What are the key corporate governance issues relating to this?

Reviews

Write a Review

Financial Management Questions & Answers

  What is the convexity of each bond-duration of each bond

Suppose bond A has 20 years left to maturity, an 8% coupon rate, pays interest semi-annually, and has a 6% yield to maturity and bond B has 25 years left to maturity, a 5% coupon rate, pays interest semi-annually, and has a 7% yield to maturity. What..

  Firm needs to plow back its earnings to fuel growth

Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next 10 years because the firm needs to plow back its earnings to fuel growth. If the required return on this stock is 13 percent, what is the curr..

  About the mature manufacturing firm

Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $7.65, but management expects to reduce the pay out by 5 percent per year indefinitely. If you require a return of 12 percent on this stock, what will you pay for a sha..

  Explicitly stated to use annual coupon payments

Rolling Company bonds have a coupon rate of 4%, 14 years to maturity and a current price of $1,086. What is the YTM? The current yield? (Assume semi-annual coupon payments unless it is explicitly stated to use annual coupon payments)

  What is unlevered beta

Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before tax cost of debt is 10%, and its tax rate is 40%. It currently has a levered beta of 1.15. The risk free are is 3.5% and the risk premium on the market is 7%..

  Accounting department costs will be allocated to production

Sasha Company allocates the estimated $189,300 of its accounting department costs to its production and sales departments since the accounting department supports the other two departments particularly with regard to payroll and accounts payable func..

  Preferred stock is expected to pay a dividend

Jones Company preferred stock is expected to pay a dividend of $1.75 per share. If your required rate of return is 7%, what is the most that you should be willing to pay for a share of Jones’ preferred stock today? Apple, Inc. just paid a dividend of..

  Will the buyer succeed in recovering the excess

The buyer didn't commence action to recover the excess payment until some nine months after delivery.- Will the buyer succeed in recovering the excess?

  Calculated from the capital asset pricing model

Investment in portfolio A has a standard deviation of 9%, while investment in portfolio B has a standard deviation of 14%. In order to tolerate the increased risk, what would you as an investor expect? The required rate of return for an investment ca..

  Rivera an intended beneficiary of the howie-wilken contract

Wilken owes Rivera $2,000. Howie promises Wilken that he will pay Rivera the $2,000 in return for Wilken’s promise to give Howie’s children guitar lessons. Is Rivera an intended beneficiary of the Howie-Wilken contract?

  From a tax perspective

From a tax perspective, what do you view as some of the advantages and disadvantages of filing as a partnership? Please be specific and thorough in your response. List several examples of each.

  What is the amount of four equal payments

A debt of $1,000 is incurred at   t = 0. What is the amount of four equal payments at   t = 1, 2, 3, and 4 that will repay the debt if money is worth 10 percent compounded per period?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd