ECON 3420 Discussion Report [1155002502]

ECON 3420 Discussion Report [1155002502] - ECON 3420A...

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ECON 3420A (2011-12 Term 1) Discussion Report [Group 1] Name: Sin Leong Hang SID: 1155002502 1. Risk: C > B > A A is a bond issued by the Hong Kong government. Bonds, in particular sovereign bonds, are considered to be low-risk investment vehicles, compared with securities and derivatives. As Hong Kong government’s credit rating is quite high, accordingly the risk will be the lowest among all three assets. The next thing is to compare Sun Hung Kai stock and the HSI derivative. The underlying asset of HSI derivative is a well-diversified market portfolio, however since its fluctuation is multiplied by 10 times, the HSI derivative is very likely more risker than most single stock. One of the student of my group argue that if there is a stock with beta greater than 10 (using HSI as benchmark portfolio), then it is risker than the HSI future. I think he in principle is right, but in general a stock with beta higher than 10 is really rare. Given that no further information and conditions are stated in the question, the above deduction is the best we can make. The mean return follows the same order, i.e. C > B > A. The reason is that investors require higher return for high-risk assets. Otherwise arbitrage opportunity might exist. 2.
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ECON 3420 Discussion Report [1155002502] - ECON 3420A...

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