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assignment1 - Stat 371 Assignment 1 Spring 2010 Due: in...

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Stat 371 Assignment 1 Spring 2010 Due: in class, Thursday May 20 1. A company that manages part of a pension fund is responsible for investing in equities outside North America. To justify the fees, the pension fund trustees require that the company achieve returns better than a benchmark portfolio, here the so-called EAFE index, by 200 basis points (2%). In reporting to their client , the company’s portfolio review contained the following statement about the control of risk. “We define and control risk through statistically based measurements such as R 2 . This ensures that we maintain an appropriate level of diversification given each client’s portfolio objectives. A minimum R 2 of .80 would be acceptable; however the R 2 in our portfolio has typically been meaningfully higher. … In this way, a well diversified portfolio can be achieved without resorting to the more common country, economic or industry diversification approaches which tend to limit stock selection flexibility.” In the file pension.txt
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assignment1 - Stat 371 Assignment 1 Spring 2010 Due: in...

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