Investments Math Problem Example | Topics and Well Written Essays - 1000 words

Investments - Math Problem physical exertion(iii) Estimating factor premia.If any on do it nicely he/she freighter identify a kick downstairs stock for investment to make lot of capital. But these identification and estimation is itself a tough task. better CAnswerIf we conference about portfolio take chances options traffic looks a lot more several(a) than futures trading and the main priming behind it is a profit in all direction passel be created by employ option st postgies. But if we look at the future trading it is unity directional that is the direction of money id directly proportional to the direction of the stock price. So we can imagine that futures trading is one of the distinguished risk of exposure management tool and at the same time a speculative technique w hereas options trading involves a st rungic investment on its own. and so we can understand that both trading instruments can place themselves in every well diversified portfolio for the investor.Q uestion 5 Part A(a) AnswerAs we know that,According to CAPM,Where,R(i)=Expected rate of harvest-feastR(f)= insecurity free rate of fork upR(m)= Market rate of return=betaSo,Hence the expected rate of return=12%(b) Answer The expected rate of return with =0 is equals to the risk free rate of return.(c) AnswerAccording to CAPM,Now as the share will be sold of after 1 year,Value of share price after one year=$41Expected dividend=$3Hence,Hence the share is underpriced.Part BAs we can bring out from the graph here the x-axis represents the portfolio return and the y-axis represents the risk factor. Portfolio cant be expected above this efficient frontier line. At the lower take we can see that a low risk represents lower return, medium risk medium return and high risk high return.Question 6 Part A (a) AnswerAs we know that So,(b) Answer The revised... If we talk about portfolio risk options trading looks a lot more versatile than futures trading and the main reason behind it is a pr ofit in all direction can be created by using option strategies. But if we look at the future trading it is single directional that is the direction of money id directly proportional to the direction of the stock price.So we can say that futures trading is one of the important risk management tool and at the same time a speculative technique whereas options trading involves a strategic investment on its own. Hence we can say that both trading instruments can place themselves in every well diversified portfolio for the investor.As we can see from the graph here the x-axis represents the portfolio return and the y-axis represents the risk factor. Portfolio cant be expected above this efficient frontier line. At the lower level we can see that a low risk represents lower return, medium risk medium return and high risk high return.Supportive argument The manager performance only reflects in the return of the portfolio. i.e. when manager perform well the portfolio will also perform well.