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  • Fixed income: Risk consideration

    Bond Characteristics to Consider It is important to consider several characteristics of the individual bonds that are used to construct an immunized portfolio. – Credit rating – Embedded option – Liquidity Immunization against Non-parallel shifts Equating the duration of the portfolio with the duration of the liability does not guarantee immunization. Immunization risk can be […]


  • Fixed Income Portfolios: Aligning risk exposure

    1. Selecting a bond index Regardless of the strategy employed, the manager should be judged against a benchmark, and the benchmark should match the characteristics of the portfolio. There are four primary considerations when selecting a benchmark: – Market value risk varies directly with maturity, the greater the risk aversion, the lower the acceptable market […]


  • Approaches for asset allocation

    1. The Mean – Variance Optimization (MVO) approach A significant drawback to generating an efficient frontier through traditional mean-variance optimization methods is the sensitivity of the frontier to changes in the inputs. The input themselves (e.g., expected return, covariance) are estimates. Reliance on an efficient frontier developed through a traditional, single mean-variance optimization is questionable. […]


  • Reading 18: Asset allocation

    1. Specifying risk and return objectives – The return objective for an individual’s or institution’s portfolio is based upon the size of the portfolio, long-term spending (liquidity) needs, the time horizon, and the maintenance of the principal. – Investors can be placed into numerical categories of risk aversion using a rough approximation or through answers […]


  • Reading 44 : Portfolio Risk and Return (P.2)

    4. Explain return generating models (including the market model) and their uses Return generating models are used to estimate the expected returns on risky securities based on specific factors. A simplified ⇒ The market model: Ri = ?i + ?i . Rm + ei Where:       i: Return on asset i, Rm : market return.      ?i: […]


  • Reading 44 : Portfolio Risk and Return (P.1)

    Describe the implications of combining a risk-free asset with a portfolio of risky assets 2. Explain the capital allocation line (CAL) and the capital market line (CML) The line of possible portfolio risk and return combinations given the risk-free rate and the risk and return of a portfolio of risky assets ⇒ Capital Allocation Line. […]


  • Reading 43: Portfolio Risk and Return (P.2)

    Correlation coefficient: ∈ (-1;1) ? = 1: deviations from the mean or expected return are always proportional in the same direction. They are perfectly positive correlated. ? =- 1: in opposite direction. Negative correlated. ? = 0: no linear relationship between 2 stock’s return. Uncorrelated.   4. Explain risk-aversion and its implications for portfolio selection […]


  • Reading 43: Portfolio Risk and Return (P.1)

      Calculate and interpret major return measures and describe their appropriate uses Holding period return (HPR) Average returns The arithmetic mean return is the simple average of a series of periodic returns. The geometric mean return is a compound annual rate. The money-weighted rate of return is the internal rate of return on a portfolio […]


  • Reading 41: The corporate Governance of listed companies: A manual for investors

    1. Define corporate governance   Corporate governance is the set of internal controls, processes and  procedures by which firms are managed. If defines the appropriate rights, roles and responsibilities of management, the board of directors and shareholders within an organization. Good corporate governance practices seek to ensure that: The board of directors protect shareholder interests. […]


  • Reading 40: Working capital management (P3)

    Inventory management Inventory levels are too low ⇒ lost sales due to stock-outs ⇒ insufficient to sale, produce. Inventory levels are too large ⇒ carrying costs, obsolete. Misleading when comparing average days of inventory & inventory turnover ratios between industries or two firms that have different business strategies. Ex: Grocery business need high inventory turnover, […]