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Stock portfolios

As discussed previously, if you cannot tolerate your investment portfolio declining by 30% percent in one year, you do not want to have an all-stock portfolio (because the largest historical one year decline was 43.3%). But how should you allocate your resources Suppose that you can tolerate a 20% decline or a 10% decline Based on historical returns and using large stocks and long-term bonds as major asset classes to design a portfolio, you should not have more than 40% stocks in your portfolio ifyou cannot tolerate agreater than 20%... [Pg.327]

Martin s stock portfolio increased by y and then decreased by y. Ifhis portfolio was worth 5,400 before, how much is it worth now ... [Pg.68]

Another very popular definition of risk is through the risk premium or beta. This is defined as the slope of the curve that gives market returns as a function of S P 500 Index returns in other words, comparing how the investment compares with the market. The concept of beta (the slope of the curve) is part of the capital asset pricing model (CAPM) proposed by Lintner (1969) and Sharpe (1970), which intends to incorporate risk into valuation of portfolios and it can also be viewed as the increase in expected return in exchange for a given increase in variance. However, this concept seems to apply to building stock portfolios more than to technical projects within a company. [Pg.333]

Lintner J. 1969. The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. Rev. Econ. Stat., 51(2), 222-224. [Pg.373]

With respect to computation, for limited numbers of assets (small /), solutions are easily obtained (although not necessarily efficiently) using standard spreadsheet optimizers. This works for the vast majority of allocation problems because most applications typically include no more than a dozen assets. More specialized optimizers are sometimes necessary when there are many assets. For example, if MV is applied to select a stock portfolio, there may be hundreds of securities used as admissible assets. ... [Pg.756]

Lintner, J., 1965. The Valuation of Risk and the Selectionof Risky Investments in Stock Portfolios and Capital Budgets. Rev. Econ. Stat. 47 (1), 13-37. [Pg.206]

Before closing the deal your alternatives should also be considered. Some mutual funds have at times earned 12% annually. These are based on a portfolio of stocks and there is no guarantee that there will not be a loss instead of a profit. If 13,500 is invested at 12% per annum, after 7 years the value of the principal plus interest is 29,800. To request this amount from your roommate in return for financing his car would still be reasonable. Other alternatives would be municipal or government... [Pg.294]

A portfolio manager has 100,000 to invest in a list of 20 stocks. She estimates the return from stock i over the next year as r(i), so that if x(i) dollars are invested in stock i at the start of the year, the end of year value is [1 + r(/)] jt(/). Write an MILP model that determines the amounts to invest in each stock in order to maximize end-of-year portfolio value under the following investment policy no more than 20,000 can be invested in any stock, and if a stock is purchased at all, at least 5000 worth must be purchased. [Pg.376]

Pharmaceutical firms often choose to in-license compounds to beef up their developmental pipeline or round out their existing product portfolio. Structurally, in-licensing can be represented with a simple extension of the basic stock/flow framework, as shown in Figure 35.19. [Pg.652]

Konno, H. and Yamazaki, H. (1991) Mean-absolute deviation portfolio optimization model and its applications to Tokyo Stock Market. Management Science, 37, 519. [Pg.138]

If you want to be sure something is left when you die, here s a plan that will work for you. Harvard University s endowment fund developed a spending guideline in 1973 to ensure a person wouldn t prematurely run out of money. The rule assumes a balanced portfolio allocated half to stocks and half to bonds and cash equivalents. It limits the first-year withdrawal to four percent of the portfolio s total value. Then, in each following year, increase this amount by the previous year s rate of inflation. Continue in this manner from year to year. For example, if you have a 500,000 portfolio, you could withdraw 20,000 in the first year. If the rate of inflation were 3.5 percent that year, you could withdraw 20,700 the second year. [Pg.235]

A question many employees have is, How much money do I need to retire and maintain my preretirement lifestyle According to a growing field of research on investment withdrawals, in order to have a 100 percent inflation-adjusted probability of not running out of money over a 30-year period (based on the historical performance of stocks, bonds, cash, and inflation), retirees should not withdraw more than 4 to 5 percent of their investment portfolios on an annual basis (Cooley, Hubbard, and Waltz, 1998). A typical couple needs to plan for a minimum of 20 years of income at retirement (Burns, 1997). In essence, if you have 20 years of income in investments or some other vehicle, you will be secure. Where do you get those years of income ... [Pg.328]

Pragmatically, the companies are geared up for a steady flow of new products, which means a steady flow of clinical candidates to put into trial. Capacity at CROs helps to even the flow. If a company is not putting drugs into clinical trials, confidence from investors will drop, and they will adjust their portfolios accordingly. Stock price is as heavily affected by the prospects of a company s pipeline as by its current sales. [Pg.132]

The first is the Cost of Equity. It is defined here as the return that a shareholder expects from the company over a certain period, in terms of dividend and the capital gain from a rise in the stock price. These are the actual expectations of income on which an investor bases his original purchase or reviews his portfolio. The Cost of Equity can be estimated using the Capital Asset Pricing Model (CAPM). [Pg.20]

In light of these developments, it is reasonable for investors analyzing the situation to determine that the Bhopal controversy will not go away on its own and indeed will always be a black mark on the company s record. Increased attention to Bhopal heightens the real potential that money managers who run portfolios that incorporate environmental and social analysis will screen out Dow stock. There is over 2.18... [Pg.467]

To deal with risk, mostly they measure it using variability (or volatility), which is incorrect in almost all engineering project cases, as is explained later. They diversify by adding stocks to the portfolio. [Pg.329]

A technological solution to bundle trading is to provide an auction that allows buyers and sellers to trade any number of goods in any combination. For example, stock trading markets such as NYSE or Nasdaq are double auctions that clear individual assets one by one. On the other hand, investors usually hold their assets in a portfolio that consists of diverse assets, consistent with their investment objectives on the overall returns and values. Nevertheless, physical markets are unable to carry out unbundling emd rebundUng of assets offered and demanded in the market. [Pg.277]

On the surface, MV analysis is not especially difficult to implement. For example, it is very easy to guess at future stock and bond returns and use historical variances and correlations to produce an optimum portfolio. It is not so simple to create a multidimensional portfolio consisting of multiple equity and fixed income instruments combined with tiltemative assets such as private equity, venture capital, hedge ftmds, and other wonders. Sophisticated applications require a lot of groundwork, creativity, and rigor. [Pg.752]


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See also in sourсe #XX -- [ Pg.5 ]




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