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9 Dec 2018

Given the investment options below - if you were to determine the optimal portfolio of investments for you - what percentages would you give to each category (must add up to 100%). Why?

Cash

US Treasuries

Bonds

Small Cap Stocks,

Large Cap Stocks,

International Stocks

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Hubert Koch
Hubert KochLv2
10 Dec 2018

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QUESTION 5

Today is your 25th birthday, and you want to save $1.5 Million by your birthday at age 70. If you expect to earn 7% APR compounded monthly in your retirement account, what constant payment at the end of each month must you deposit into the account through your 70th birthday in order to reach your retirement savings goal on your 70th birthday? (Answer to the nearest penny.)

QUESTION 46

Suppose you are comparing two portfolios of stocks to determine which is more appropriate for all of your investments. Portfolio A contains a large number of stocks, but each stock appears to have a relatively high amount of risk which you believe is unsystematic in nature and a relatively low level of systematic risk. Portfolio B also contains a large number of stocks, however each stock in that portfolio seems to contain a relatively large amount of systematic risk and a low level of unsystematic risk. If both portfolios have the same expected return, which portfolio would most likely be the best choice?

a.

Portfolio A
b.

Portfolio B
c.

There is no information that would indicate that one portfolio is better than the other.

Please respond with a paragraph to each question

Stock A has a beta of 0.80, stock B has a beta of 1.40, and stock C has a beta of -0.30.

Rank these stock from the riskiest to the least risky. Explain your reasoning and back up your explanation with research.

If the return on the market portfolio increases by 12%, what change in the return for each of the stocks would you expect? Explain your answer.

If the return on the market portfolio declines by 5%, what change in the return for each of the stocks would you expect? Explain your answer.

If you felt the stock market was about to experience a significant decline, which stock would you be most likely to add to your portfolio? Why?

If you anticipated a major stock market rally, which stock would you be most likely to add to your portfolio? Why?

Given your risk tolerance, and your need to diversify, explain how the Selected Realized Returns (1926รขย€ย“2013) page 269 and the Effects of Portfolio Risk for Average Stocks will impact your future investment decisions and why.

The table accompanying this box summarizes the historical trade-off between risk and return for different classes of investments from 1926 thorugh 2013. As the table shows, those assets that produced the highest average returns also had the highest standard deviations and the widest ranges of returns. For example, small-company stocks had the highest average annual return, 16.9%, but the standard deviation of their returns, 32.3%, was also the highest. By contrast, U.S. Treasury bills had the lowest standard deviation., 3.1%, but they also had the lowest average return, 3.5%. Although there is no guarantee that history will repeat itself, the returns and standard deviations observed in the past are often used as a starting point for estimating future returns.


Selected Realized Returns, 1926-2013:

Average Return Standard Deviation

Small-Company Stocks 16.9% 32.3%

Large Company stocks 12.1 20.2

Long term corporate bonds 6.3 8.4

Long-term government bonds 5.9 9.8

US Treasury Bills 3.5 3.1

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