Chapter 12 Financial Planning Exercise 5 Choosing appropriate stocks Assume that you've just inherited $500,000 and have decided to invest a big chunk of it ($350,000 to be exact) in common stocks. Your objective is to build up as much capital as you can over the next 15 to 20 years, and you're willing to tolerate a "good deal" of risk. What types of stocks ( blue chips, income stocks, and so on) do you think you'd be most interested in, and why? Select at least three types of stocks and briefly explain the rationale for each. Would your selections change if you were dealing with a smaller amount of money - say, only $50,000? What if you were a more risk-adverse investor?

Chapter 12 Financial Planning Exercise 5 Choosing appropriate stocks Assume that you've just inherited $500,000 and have decided to invest a big chunk of it ($350,000 to be exact) in common stocks. Your objective is to build up as much capital as you can over the next 15 to 20 years, and you're willing to tolerate a "good deal" of risk. What types of stocks ( blue chips, income stocks, and so on) do you think you'd be most interested in, and why? Select at least three types of stocks and briefly explain the rationale for each. Would your selections change if you were dealing with a smaller amount of money - say, only $50,000? What if you were a more risk-adverse investor?

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 5FPE: Assume that you’ve just inherited $500,000 and have decided to invest a big chunk of it ($350,000,...

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Assume that you’ve just inherited $500,000 and have decided to invest a big chunk of it ($350,000, to be exact) in common stocks. Your objective is to build up as much capital as you can over the next 15 to 20 years, and you’re willing to tolerate a “good deal’’ of risk. What types of stocks (blue chips, income stocks, and so on) do you think you’d be most interested in, and why? Select at least three types of stocks and briefly explain the rationale for selecting each. Would your selections change if you were dealing with a smaller amount of money—say, only $50,000? What if you were a more risk-averse investor?
Risk return exercise : D2L Assessment #7 DePaul, Inc. You are searching for a stock to add to your current stock portfolio. You are interested in DePaul, Inc. You realize that any time you consider a technology stock, it involves elevated risk. The rule you follow is to include only stocks with a coefficient of variation of returns below 1.02. You have obtained the following price information and dividend information: Year Starting Price $40.00 Ending price Quarterly Dividend 1 $42.00 $0.50 $42.00 $47.40 $0.75 3 $47.40 $43.40 $1.00 4 $43.40 $53.40 $1.25 a. Calculate the annual rate of return for each year, 1 through 4, for DePaul stock b. Assume that each year's return is equally probable and calculate the average return over this time period. Calculate the standard deviation of returns over the 4 years. Based on b and c determine the coefficient of variation of returns for the security. Does an investment in this stock fall within the parameters of your investment policy? С. d. e.
Problem 3. Consider the following information about Stocks A, B and C: Amount Invested Beta A $100,000 0.35 The amount invested in Stock C is B $150,000 1.20 C ? 1.40 How much would you have to invest in Stock C to create a portfolio that has as much systematic risk as the market portfolio?
For DePaul Inc. what is the return for year 2. Round to no decimal points and use the % symbol (27%...not 27.12%)
Question: You are an investment advisor. You currently own two stocks, A and B, with the following characteristics: Expected Return Beta X 10% 0.8 Y 16% 1.5 The current risk-free rate is 2 percent, and the expected return on the market is 12 percent. How would you change your holdings of the two stocks (i.e., for each, would you sell or buy more)? Show your calculations (and explain). Stock A: Stock B:
Styles QUESTION 3 Alan, a chartered financial analyst (CFA), is willing to invest two stocks, Bloom stock and Stars stock. He has collected the data on both stocks from Bursa Malaysia. The data as follows: Stock Stock Bloom Stars State of Probability Return (%) Return (%) Economy Recession 0.35 -20 30 Normal 0.40 10 20 Boom 0.25 70 50 Alan has RM100,000 and he plans to invest RM60,000 in Bloom and the remainder in Stars. The market price for Bloom and Stars are RM12 and RM25 respectively. Beta for each stock is 1.2 and 0.5. Required: C. If Alan decide to invest all 100% in Bloom stock, criticise your findings. w ww m D. Evaluate the beta portfolio and each of the stocks. Assess the riskiness of the stocks based on standard deviation and the beta.
c. An investor wants to implement a returns-based momentum strategy. Using the method in the Study Guide, what money position should be held in each of the four stocks given below if the total long position is to be $1,000? Explain your reasoning. Security Period 1 Period 2 A 30 40 50 70 60 65 10 12 BCD
Question 4 You are a financial investor who actively buys and sells in the securities market. Now you have a portfolio, including four shares: $7,500 of Share A, $4,800 of Share B, $5,700 of Share C, and $2,500 of Share D. Required: A)Compute the weights of the assets in your portfolio? B)If your portfolio has provided you with returns of 7.7%, 10.5%, - 8.7% and 14.2% over the past four years, respectively. Calculate the geometric average return of the portfolio for this period? C)Assume that expected return of the stock A in your portfolio is 13.2%. The risk premium on the stocks of the same industry are 6.8%, beta of this stock is 1.3. Calculate the risk-free rate of return using Capital market pricing model (CAPM). ? D)You have another portfolio that comprises of two shares only: $500 Tesla shares and $700 Eagle shares. Below is the data of your portfolio: Tesla Eagle Expected…
Problem 2 Financial planner Minnie Margin has a substantial number of clients who wish to own a mutual fund portfolio that matches, as a whole, the performance of the Russell 2000 index. Her task is to determine what proportion of the portfolio should be invested in each of the five mutual funds listed below so that the portfolio most closely mimics the performance of the Russell 2000 index. Annual Returns Year 1 Year 2 Year 3 Year 4 International Stock 22.37 26.73 4.86 2.17 Large-Cap Value 15.48 19.64 11.50 -5.25 Mid-Cap Value 17.42 20.07 -4.97 -1.69 Small-Cap Growth 23.18 12.36 3.25 3.81 Short-Term Bond 9.26 8.81 6.15 4.04 Russell 2000 Index 20 22 8 2 Write out the (non-linear) program that would produce a portfolio that most closely mimics the performance of the Russell 2000 Index. Use Excel's Solver with "GRG Non-Linear" as the solution algorithm: what is the optimal solution, i.e.,…
A-Z еВook Chapter 12 Financial Planning Exercise 2 Calculating expected return on an investment An investor is thinking about buying some shares of Health Diagnostics, Inc., at $50 a share. She expects the price of the stock to rise to $90 a share over the next 3 years. During that time, she also expects to receive annual dividends of $4 per share. Assuming that the investor's expectations (about ed the future price of the stock and the dividends that it pays) hold up, what rate of return can the investor expect to earn on this investment? (Hint: Use either the approximate yield formula or a financial calculator to solve this problem.) Round the answer to two decimal places. % Grade it Now Save & Continue Continue without saving NOV 14 átv A w MacBook Air
QUESTION 3 (Quantitative Question) Assume that you manage a $10.75 million mutual fund that has a beta of 1.05 and a 9.50% required (expected) return. The risk-free rate is 496. You now receive another $5.7 million, which you invest in stocks with an average beta of 0.65. What is the expected return on the new portfolio? Write the answer both in the space provided and on the empty pages on which you will also show your work.
Question 4 You are an experienced investor in the securities market and you have established an investment portfolio of two blue chips five years ago: Diamond shares with current market value of $235,000 and Platinum shares with current market value of $355,000. Required: a) If your portfolio has provided you with returns of 10.5%, 12.6%, - 11.5%, 14.5% and 15.2% over the past five years, respectively. Calculate geometric average return of the portfolio for this period. b) Assume that data in the table below is available for your portfolio performance, calculate the expected return, variance and standard deviation of the portfolio? Diamond Platinum Expected return 16.5% 23.5% Standard Deviation of return 7% 11% Correlation of coefficient (p) 0.45 c) Assume that beta of the Diamond shares in your portfolio is 1.5. The market portfolio expected…