Questions Modern Portfolio Theory
1/ Draw the shape of the Markowitz efficient frontier. Discuss the concept of dominance.
The concept of dominance: States that among all investments with a given the same level
of risk, the one with the highest return is
Questions Modern Portfolio Theory
1/ Draw the shape of the Markowitz efficient frontier. Discuss the concept of dominance.
2/ What is the mutual fund separation theorem?
3/ Draw the shape of the Markowitz efficient frontier. Draw the utility curve of an
i
Investment
Analysis
Class 4
Capital Market Theory
Capital Market Theory
From the portfolio theory developed by Markowitz, a model for pricing all
risky assets has been created: the capital asset pricing model (CAPM). This is
based on the capital market th
Investment Analysis
Instructor: Luc Marest
Problems Modern Portfolio Theory
Problem 1:
You bought 100 shares of stock LGM for $41 a share and a year later you sold it for $49
a share.
a/ Compute the HPR and the HPY.
b/ During the year, you received a cash
Investment
Analysis
Class 1
Market Securities
Why to invest?
When current income exceeds current consumption desires, people
can do many things with their savings.
One possibility is to put the money under a mattress.
However, it is important to invest.
D
Investment
Analysis
Class 2
Market Efficiency
Disequilibrium Vs Efficient
Markets
When we try to find out if we can predict the evolution of prices in
financial markets, two main views dominate the debate.
The view that markets are efficient in the sense
Investment
Analysis
Class 3
Modern Portfolio Theory
Modern Portfolio Theory
Now, we are going to consider the portfolio manager perspective.
We will examine how they deal with return and risk to make their investment
decision.
As a remainder, risk means t
Investment
Analysis
Class 5
Arbitrage Pricing Theory
Arbitrage Pricing Theory
As a consequence of problems encountered with the CAPM, the academic
community looked for an alternative model still within the assumption of
market efficiency.
Ross (1977) deve
Investment
Analysis
Class 6
Equity Portfolio
Portfolio Management
According to the efficient market hypothesis, investors are allocating their
funds between the risk free rate securities and the market portfolio.
It is the base of mutual fund theory.
Inve
Investment
Analysis
Class 7
Fundamental Analysis of
Stocks
Fundamental Analysis
We are now going to study the value investment approach or fundamental
approach. This investor approach is different than the speculator approach
because it relies thorough an
Investment
Analysis
Class 9
Valuation of Stocks
Stock Valuation
Stream of Expected Returns
Form of returns
Earnings
Cash flows
Dividends
Interest payments
Capital gains (increases in value)
Time pattern and growth rate of returns
When the returns (C
Investment
Analysis
Class 10
Equity Strategies
Equity Strategies
There are multiple different strategies that asset managers adopt.
In the following description, a title of a strategy is given, but in reality,
along a major strategy described there many o
Investment
Analysis
Class 15
Bond Portfolio
Feature of Bonds
Bonds as fixed income securities: they impose fixed financial obligations on the issuers.
Indenture provisions: the indenture is the contract between the issuer and the
bondholder specifying the
Investment Analysis
Instructor: Luc Marest
Problems APT
Problem 1:
An analysis has showed the historical risk premiums associated with four risk factors
that could be incorporated in the calculation of expected return of a stock LGM.
The factors are:
1/ t
Investment Analysis
Instructor: Luc Marest
Problems Modern Portfolio Theory
Problem 1:
You bought 100 shares of stock LGM for $41 a share and a year later you sold it for $49 a share.
a/ Compute the HPR and the HPY.
b/ During the year, you received a cash
Investment Analysis
Instructor: Luc Marest
Problems CAPM
Problem 1:
Based on 10 years of monthly data, you derive the following information for the companies
listed:
Company
LGM
ABX
S&P500
i
11.82%
9.87%
5.3%
rim
0.68
0.61
1
rim is the correlation of the
Questions Market Securities:
1/ What is the required rate of return composed of?
the rate of return which compensate for the time, the rate of inflation, and
the uncertainty of the return.
1/ What are the risks associated with investments?
Questions 2-6
2
Efficient Market Hypothesis:
1/ What are the assumptions behind the efficient market hypothesis?
On average, neither buyers nor sellers consistently know more about the future.
At any given time, speculators cannot know if markets will go up or down
since
Questions Equity Portfolio Management Version 2
1/What is the concept of passive equity portfolio management?
The passive strategy consist of holding stocks so the portfolios return will track those of
a benchmark over time.
The concept of a passive equit
Questions Stock Fundamental:
1/ What is a leading indicator? (Give definition and an example)
2/ What is a coincident indicator? (Give definition and an example)
3/ What is a lagging indicator? (Give definition and an example)
4/ What is a mutual fund?
5/
Questions Market Securities:
1/ What is the required rate of return composed of?
Composed of compensation for the time, the rate of inflation, and the uncertainty of the
return.
2a/ What are the risks associated with investments?
(5) Business, Financial,
Support and Resistance
Short 1
Buy 1
Short 2
Buy 2
When drawing the support/resistance, traders may use either the lowest/highest of the day or the
lowest/highest part of the body of the candlestick.
Short 1 reached the resistance using the body while sho
Investment Analysis
Instructor: Luc Marest
Problems Valuation Stocks
Problem 1: One-stage model (from now constant growth for ever)
You want to determine the potential valuation for the firm LGM using the dividend discount model.
You anticipate that the f
Queens College
BUS 350: Investment Analysis
Instructor: Luc Marest
Problems Equity Portfolio
Problem 1:
We have the following stocks that compose an index:
Stock
A
B
C
Number of shares
2,000,000
13,000,000
15,000,000
Price at time t
34
72
41
Price at time
Investment
Analysis
Class 12
Other Traders Strategies
Technical Analysis
Debate
One advantage of using technical analysis is that it doesnt dependent
heavily on financial accounting statements. Everything is discounted in the
price, including the psycholo
Investment
Analysis
Class 13
Hedge Funds
Alternative Investments
We hear constantly the notion of alternative investment, but there is no
clear definition of what it is. The basic problem is that financial instruments
that are part of what we call alterna
Investment
Analysis
Class 14
Hedge Funds Strategies Part 1
Strategies
They is a lot of different strategies that an hedge fund can use. We will
discuss the main strategies that are usually implemented:
Long/Short equities
Equity Market Neutral
Pure Short
Questions Financial Analysis:
1/ What is net working capital and what does it measure?
Net Working Capital = Current Assets Current Liabilities
It measures how a company is able to pay off its short term L with its short term A
2/ Why do market values of
Questions Stock Fundamental:
1/ What is a leading indicator? (Give definition and an example)
Economic series that usually reach peaks or troughs before corresponding peaks or
troughs in aggregate economy activity. Example = Index of consumer expectations
Efficient Market Hypothesis:
1/ What are the assumptions behind the EMT?
Large # participants analyze and value securities
New information comes to the market in a random fashion
The buy and sell decisions who adjust prices rapidly reflect the effect o