Learning Goal: I’m working on a finance question and need an explanation and answer to help me learn.
Q1: Why do most investors prefer to hold a diversified portfolio of securities as opposed to placing all of their wealth in a single asset?
1. Why do most investors hold diversified portfolios?
Investors hold diversified portfolios in order to reduce risk, to lower the variance of the
Portfolio. Variance is considered a measure of risk of the portfolio and is one of the many
financial tools used. A diversified portfolio should accomplish this because the returns for the
alternativeassetsshouldnotbecorrelatedsothevarianceofthetotalportfoliowillbe
generally reduced.
2. W
1. Why do most investors hold diversified portfolios?
Investors hold diversified portfolios in order to reduce risk, to lower the variance of the
Portfolio. Variance is considered a measure of risk of the portfolio and is one of the many
financial tools used. A diversified portfolio should accomplish this because the returns for the
alternativeassetsshouldnotbecorrelatedsothevarianceofthetotalportfoliowillbe
generally reduced.
2.
Q2: Given the following financial data, compute:
a. Return on equity.
b. Quick ratio.
c. Long-term debt to equity.
d. Fixed-charge coverage.
Assets: | |
Cash | $ 2,500 |
Accounts receivable | 3,000 |
Inventory | 6,500 |
Fixed assets | 8,000 |
Total assets | $20,000 |
Liabilities and stockholders’ equity: | |
Short-term debt | $ 3,000 |
Long-term debt | 2,000 |
Stockholders’ equity | 15,000 |
Total liabilities and stockholders’ equity | $20,000 |
Income before fixed charges and taxes | $ 4,400 |
Interest payments | 800 |
Lease payment | 400 |
Taxes (35 percent tax rate) | 1,120 |
Net income (after-taxes) | $ 2,080 |
Q3: Explain the benefits derived from investing in deep discount bonds.
Q4: Explain how to manage bond portfolios and what are the portfolio management strategies.
1. Discuss the various risks of international investing. [03]
2. What is the basic difference between a closed-end fund and an open-end fund? [03]
3.The Closed Fund is a closed-end investment company with a portfolio currently worth $325 million. It has liabilities of $80 million and 5 million shares outstanding.
a. What is the NAV of the fund? [02]
b. If the fund sells for $45 per share, what is its premium or discount as a percent of net asset value? [02]
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