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Bfi301 Finance portfolio management

Question

Answered

Ross, is an investment manager who recently dealt with a customer by the name of Michelle. After performing a Capital Asset Pricing Model (CAPM) analysis using the S&P500 as the proxy of the market portfolio, Michelle argued that her portfolio had outperformed the market. Ross uses the CAPM as an investment performance measure and finds that Michelle’s portfolio plots below the Security Market Line (SML). Ross argued that Michelle’s porfolio’s excellent performance is due to the selection of a wrong proxy of the market portfolio, not brilliant active investment management. Support Ross’s argument by explaining the likely effects of a false proxy of the market portfolio on both the market risk and the SML’s slope.             

 

 

 

Question 2

A bond which has just been issued possess the below features :

 

Coupon

Yield-to-Maturity (YTM)

Expiry

Macaulay Duration

4%

4%

7 years

5 years

 

Required:

(a) Determine the modified duration based upon the above data.        

 

 

(b) Modified duration is a better way to determine the bond’s sensitivity to interest rate changes as compared to the expiry period of the bond. Do you agree with this statement ? Justify your stance by providing proper explanations.

 

 

(c) Determine the change’s direction in modified duration under the following situations :

(i) The bond’s coupon was 2% 

(ii) The bond’s expiry was 3 years            

 

 

(d) Provide the definition of convexity and discuss how modified duration and convexity are used to determine dP/dI (P : Bond price, I: Interest rate)

 

 

 

 

 

 

 

 

 

 

Bfi301 Finance portfolio management

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Financial Effects of IFRS 16

IFRS 16 Lease was issued recently and applies to annual reporting periods beginning on or after 1 January 2019. Discuss the existing and new requirements of the new lease standard for both lessee and lessor. Also, critically appraise the financial effects of IFRS 16 on a company listed on Singapore ...

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Accounting

Question 1 (10 marks) Exports Ltd sells goods to a company based in the United States on 1 April 2017. The invoice is denominated in the US dollars, and is $US750 000. The invoice will be due on 31 May 2017. The amount is guaranteed by a local bank so the payment is certain. The sport rate of the da ...

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MAN00012M Financial Management

Question: A penalty of five marks will be deducted for late submissions that are made within the first hour after the deadline. Submissions that are more than one hour late but within the first 24 hours of the deadline will incur a penalty of ten marks. After the first 24 hours have passed, ten m ...

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BFF3841 Credit Analysis and Lending Management

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