ADMS 3541 Lecture Notes - Lecture 32: Mutual Fund, Systematic Risk

20 views3 pages

byzantiumcat166

2 Mar 2020

School

York University

Department

Administrative Studies

Course

ADMS 3541

Professor

Alan Go

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Actively managed funds require a portfolio manager who constantly updates their holdings, while a passively managed fund"s portfolio is built on a buy-and-hold strategy. Ask any investment professional, and they"ll likely tell you that one of the most important ways to reduce your risk is through diversification. It"s a lesson most people learned after the financial crisis. The underlying theme here is that you shouldn"t put all your eggs in one basket. So don"t just invest in one industry or one type of investment vehicle. At that point, a large portion of the risk associated with investing has been diversified away. The remaining risk is deemed to be systematic risk or market-wide risk. Since most brokerage firms charge the same commission for one share or 5,000 shares, it can be difficult for an investor just starting out to buy into. Mutual funds offer investors a great way to diversify their holdings instantly.

Related Questions

Scenario 7 Investment Portfolio You know that there is a trade-off between risk and return when you choose an investment. The greater the return you expect to receive, the larger the risk you must take. Most people cannot afford to risk much of their money on investments that offer a high return. This, however, does not mean that they must accept only low returns on their investments. Through diversification, a fair return can be achieved without taking unreasonable risks. Asset allocation is the process of choosing a variety of investments that offers different combinations of risk and return. Then, if one investment fails to do well, others may make up for its poor performance by being successful. The objective for each investor is to select a portfolio of investments that meets his or her individual financial goals. Your cousin, Maya (28 years) and her husband, Peter (32 years), have very different views when it comes down to investments. Peter wants to save some money for a down payment on a house and wants to put all their money in bank accounts, whereas Maya wants to put all their money into growth stocks so that they can accumulate the money faster. They are seeking your advice. What would you suggest them to do and why? (Use vocabulary â asset allocation, rule of 72, time factor, age, types of stocks, bonds, treasury securities, mutual funds)

emeraldmole779

Can help too understand the assignment and how to start the first part, the description of the assignment is below

Global Investment Portfolio Project:

This project is intended for students to observe the differences between a portfolio of companies operating only domestically versus a portfolio of multinational enterprises and international firms (e.g. the benefits of diversification). You will also get to practice estimating a multi-risk asset-pricing model for two firms, one domestic and one multinational. The project is multipart and to allow for maximum learning requires that the first part of the project to be completed early in the semester as noted in the syllabus.

Part I: Portfolio Selection

For the first portion of this project the student will make the selection of the firms to be held within the domestic only and international fund. For each of the companies selected you should provide a sentence on why you selected the firm. You should select between 10 to 25 companies for each of the portfolios.

Each portfolio must be comprised of at least ten firms, but regardless of the number of firms selected both portfolios must have the same number of firms within the portfolio.

Part II: Portfolio Descriptions

You should present some basic portfolio values (including but not limited to the beta of the portfolios, the betas of all of the assets in each portfolio, and a statement as to how well diversified in your opinion is your fund). This would depend upon the number of firms you selected to be in your portfolio. Also, other factors, including are the companies in different industries, are the companies all very large or small firms, and are the companies all growth or value type firms. Arguably the most important item to be included is the expected return of the portfolio over the course of the semester (it is OK to base this estimation from the CAPM), this must be included in your investment policy statement.

Question 1.1. Effectively planning your spending and saving decisions provides for: (Points : 2)

A foundation for wise money management today
Will guarantee you a million dollars
Financial prosperity in the future
Both A and B
Both A and C

Question 2.2. The majority of people invest their money to: (Points : 2)

Enhance their current income
Accumulate funds for major expenditures
Save for retirement
Shelter their income from taxes
All of the above

Question 3.3. The federal government regulates securities markets through the: (Points : 2)

Department of Commerce
Federal Reserve System
National Association of Securities Dealers
Securities and Exchange Commission
Federal Securities Agency

Question 4.4. A certified financial planner can provide you with a companyâs ______ describing the firm and the security issue it wishes to sell. (Points : 2)

advertisement
prospectus
underwriting journal
dealer newsletter
None of these

Question 5.5. What investment portfolio is most diversified? (Points : 2)

Equal amounts of stock in IBMÂ®, IntelÂ®, and MicrosoftÂ®
Municipal bonds issued by New York, Houston, and Chicago
One-year, five-year, and ten-year certificates of deposit
100 shares of Wal-Mart stock, an IBM bond, and a two-year certificate of deposit

Question 6.6. What are the returns from shares of stock? (Points : 2)

Stock splits
Capital depreciation
Dividends
The ability to buy bonds