Finance tutors & teachers

London (Greater)
Up to £10,000
23 Jan 2018
17 Feb 2018
Contract Type
Part Time
Finance tutors & teachers

"hello can you help me with portfolio diversification and capm model regression? 1.) International Portfolio Diversification: There is a lot evidence that international correlation coefficients are dramatically lower than local (same country) correlation coefficients. Suppose that there are two countries and all risky assets in both countries have a standard deviation of 30%. All pairs of risky assets within the same country have a local correlation coefficient of 40%, but all pairs of risky assets between countries have an international correlation coefficient of 10%. Consider an international diversification strategy of investing half of your money in an equally-weighted portfolio in country 1 and the rest in the equally-weighted portfolio in country 2. As you increase the number of assets in your total portfolio, how much does this lower the risk of your portfolio? Use a total of 100 assets in your simulation to show the portfolio standard deviation of each country, the minimum standard deviation for each country, the international portfolio standard deviation and the international minimum standard deviation of the portfolio. Superimpose all the graphs on Excel. 2.) Risk & Return; Diversification: The comptroller of Buzz LLC has provided next year’s forecast on the company’s stock performance as follows: Business Conditions End- Price Dividend No Growth Normal Growth High Growth The Comptroller assesses the economic condition and decides that all scenarios are equally likely to happen. The stock is currently trading at £100/sh. The rate of the T-Bill is 5.5%. Calculate: a) The holding period return of the Buzz stock and its standard deviation. What do the results tell you about the volatility of the stock? b) The expected return and standard deviation of a portfolio consisting 30% of the Buzz stock and a 70% of the T-Bill. What do the results tell you about the volatility of the portfolio overall? c) Calculate the Sharpe’s Ratio for parts a) and b) above. Interpret your results. d) Construct the Capital Allocation Line (CAL) for your portfolio and interpret your results. What does this tell you about the financial analyst’s strategy for his portfolio? 3.) Portfolio Diversification Each student will be allocated with a specific stock and a FTSE index. For each asset, s/he is required to download monthly adjusted closing prices using the Bloomberg Terminal from 01/01/2012 – 31/12/2016. Once the data are obtained, each student needs to perform the following steps: a.) Calculate the annual log returns, variances and standard deviations for the periods and fill in the table below (you may wish to re-create the table in Excel if necessary). b.) Construct the portfolio’s efficient frontier by filling the table below and plotting the graph (you may wish to recreate the table if necessary). c) What does the efficient frontier graph tell you about the portfolio allocation of these two assets? As a risk-averse investor, which combination mix will he choose? Why? 4.) CAPM and Multifactor models: Each of you will be allocated a US company, an S&P500 index and a US 3- month Treasury Bill for which you will need to download data using the Bloomberg Terminal. You are to download 5 year monthly historical prices for these assets from 01/01/2012 to 12/31/2016. Using the regression of the form E[ri] – rf = αi + βi{E[rm] – rf} + εi, where εi is the residual of the regression: your answer differ from part a)? c) Estimate the value of Jensen’s alpha. d) Compare your company’s beta coefficient from OLS with the published `raw beta’ from Bloomberg. What do you conclude? For the same period and frequency, download the returns for Rm-Rf, SMB and HML from Kenneth French’s website here. Run the FF 3 factor model and comment on the model with the emphasis on the performance of the model when compared to the CAPM."

Requested by Thanurah V in London

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  • Professional and personable approach
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  • No formal qualifications required, but prior experience preferred
  • Able to pass enhanced DBS check(we can help you get a DBS check, if required)
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