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“Hello! My name is Michael and I am seeking your advice and knowledge in finance, specifically, modern portfolio theory. I heard a phrase once that was attributed to Don Quixote: “It is the part of a wise man not to venture all his eggs in one basket” (Miguel de Cervantes). I did not follow this advice and invested $10,000 in First Solar (FSRL) 11 years ago (and kept investing in this company for that period). Solar energy was (and I believe it is) the future. Who can disagree with that? However, First Solar’s 11-year return was -60%! Yes, I have lost money because I invested all my money into just one company, which I thought would provide me with the big return I wished for. What did I do wrong? I researched and analyzed First Solar and its prospects were outstanding 11 years ago and yet its average return has been negative since then. Is there anything I can do now? What would you recommend I do?”
Answer Michael’s questions and use modern portfolio theory to explain what went wrong in Michael’s quest for a big return.
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- “Hello! My name is Michael and I am seeking your advice and knowledge in finance, specifically, modern portfolio theory. I heard a phrase once that was attributed to Don Quixote: “It is the part of a wise man not to venture all his eggs in one basket” (Miguel de Cervantes). I did not follow this advice and invested $10,000 in First Solar (FSRL) 11 years ago (and kept investing in this company for that period). Solar energy was (and I believe it is) the future. Who can disagree with that? However, First Solar’s 11-year return was -60%! Yes, I have lost money because I invested all my money into just one company, which I thought would provide me with the big return I wished for. 1.What did I do wrong? I researched and analyzed First Solar and its prospects were outstanding 11 years ago and yet its average return has been negative since then. 2.Is there anything I can do now? 3.What would you recommend I do?”Hello, please help me with this. Thank you “Hello! My name is Michael and I am seeking your advice and knowledge in finance, specifically, modern portfolio theory. I heard a phrase once that was attributed to Don Quixote: “It is the part of a wise man not to venture all his eggs in one basket” (Miguel de Cervantes). I did not follow this advice and invested $10,000 in First Solar (FSRL) 11 years ago (and kept investing in this company for that period). Solar energy was (and I believe it is) the future. Who can disagree with that? However, First Solar’s 11-year return was -60%! Yes, I have lost money because I invested all my money into just one company, which I thought would provide me with the big return I wished for. What did I do wrong? I researched and analyzed First Solar and its prospects were outstanding 11 years ago and yet its average return has been negative since then. Is there anything I can do now? What would you recommend I do?”You are a portfolio manager of a prestigious Investment Management company, and two of your clients have reached you to share their thoughts about their portfolio performances: • Mathew: “Hello, I have lost a lot of money in the last two quarters! I know that I asked you to invest my money into a very aggressive mutual fund even though you said that it did not fit my investor profile. I know, I know, but I now need to recover. I want you to move my money from this aggressive mutual fund to a technology fund that has done excellent in the last year. Thus, the potential return from this fund is higher, and I think that I can recover from my losses.” • Carol: “I wanted to thank you for the extraordinary performance of my portfolio in the last few quarters. I think that this situation will not continue in the future, however. Six consecutive quarters of gain? Come on, a loss is overdue, you know? Should I move my money elsewhere? Or, if we keep the money in this portfolio, don’t you think…
- Two tales of behavioral biases: You are a portfolio manager of a prestigious Investment Management company, and two of your clients have reached you to share their thoughts about their portfolio performances: • Mathew: “Hello, I have lost a lot of money in the last two quarters! I know that I asked you to invest my money into a very aggressive mutual fund even though you said that it did not fit my investor profile. I know, I know, but I now need to recover. I want you to move my money from this aggressive mutual fund to a technology fund that has done excellent in the last year. Thus, the potential return from this fund is higher, and I think that I can recover from my losses.” • Carol: “I wanted to thank you for the extraordinary performance of my portfolio in the last few quarters. I think that this situation will not continue in the future, however. Six consecutive quarters of gain? Come on, a loss is overdue, you know? Should I move my money elsewhere? Or, if we keep the money in…You have a new job as a Financial Planning assistant. Your client wants to invest money in stocks, bonds, and treasuries that have the dividend yields shown in the table below. Your job is to allocate their money across these three investments such that the total dollars of stocks is at least $10,000 less than the total dollars in bonds plus treasuries. In addition, they have identified the maximum investment in each of those three investment types (also shown below). Maximize the dividends earned. Your answer will be the amount invested in Stocks (rounded to whole dollars). Use Scenario 3 Stocks: yield % Bonds: yield % Treasuries: yield % Stocks: $ max Bonds: $ max Treasuries: $ max Scenario 1 2.22 2.04 1.93 170,000 60,000 50,000 Scenario 2 1.71 1.98 1.88 400,000 180,000 200,000 Scenario 3. 1.14 3.03 2.08 410,000 300,000 75,000 Scenario 4 1.25 1.48 2.55 800,000 280,000 500,000(Finance: Risk and Return) Your friend told you that she invested $1,000 in a portfolio of large-company stocks 5 years ago and also reinvested the dividends. Her investment grew to $3,456 as at today. Had she invested that same amount in a Government bond she would have received $2,500 even if she reinvested the 10 percent coupons paid on the bonds. Given this information, critically discuss why anyone would want to invest in bonds rather than stocks? Further explain why the price of many individual stocks still go down, even when the overall stock market goes up. How can you avoid the value of your stock from going down?
- If you have a choice to invest your 1 million dollars in bonds or stocks where are you going to invest? Can you explain the factors that made you choose one but not the other? That is to say what market conditions you have to take into consideration in this investment? can you write to me around 300 wordsFrank Meyers, CFA, is a fixed-income portfolio manager for a large pension fund. A member of the Investiment Committee, Fred Spice, is very interested in learning about the management of fixed-income portfolios. Spice has approached Meyers with several questions. Specifically, Spice would like to know how fixed-income managers position portfolios to capitalize on their expectations of future interest rates. Meyers decides to illustrate fixed-income trading strategies to Spice using a fixed-rate bond and note. Both bonds have samiannual coupon periods. Unless otherwise stated, all interest rate (yield curve) changes are parallel. The characteristic of these securities are shown in the following table. He also considers a nine-year floating-rate bond (floater) that pays a floating rate semiannually and is currently yielding 5%. Fixed-rate bond: price 107.18, YTM 5%, TMT (years) 18, modified duration (years) 6.9848. Fixed-rate note: price 100, YTM 5%, TMT (years) 8, modified duration…You have a new job as a Financial Planning assistant. Your client wants to invest money in stocks, bonds, and treasuries that have the dividend yields shown in the table below. Your job is to allocate their money across these three investments such that the total dollars of stocks is at least $10,000 more than the total dollars in bonds plus treasuries. In addition, they have identified the maximum investment in each of those three investment types (also shown below). Maximize the dividends earned. Your answer will be the total Dividends earned (rounded to whole dollars). Use Scenario 2 Stocks: yield % Bonds: yield % Treasuries: yield % Stocks: $max Bonds: $max Treasuries: $ max Scenario 1 2.22 2.04 1.93 170,000 60,000 50,000 Scenario 2 1.71 1.98 1.88 400,000 180,000 200,000 Scenario 3 1.14 3.03 2.08 410,000 300,000 300,000 Scenario 4 1.25 1.48 2.55 800,000 750,000 500,000
- Acting as a financial adviser one of your duties is to create a balance of stocks and bonds that are tailored to the risk tolerance of your client. This means, some people want riskier balance with the goal of making more money, while others will take a lower risk to be safer with their investments. Your client has informed you that they have a desired average risk of 3.672 and have $7758.69 to invest in your suggested stocks and bonds. They also want triple the number of shares of MAT compared to BUS. You have selected: Stock MAT which has a risk of 3.2 and costs $36.74 per share. Stock BUS which has a risk of 8 and costs $46.35 per share. Bond SAFE which has a risk of 1.6 and a cost of $37.8 per share. You have determined you should buy shares of MAT, shares of BUS, and shares of SAFE.Wall Street performs a sort of financial alchemy" enabling the individual to benefit from institutions lending money to them, according to Adam Davidson, cofounder of NPR's "Planet Money." Individuals can Invest small amounts of their money in a 401(k), pooling their capital and spreading the risk. Saved If you invested in Fidelity New Millennium, FMILX, how much would you pay for 80 shares if the 52-week high is $32.26, the 52-week low is $26.38, and the NAV IS $31.88? Note: Round your answer to the nearest cent. Amount paid KA NJuan is a small-business owner. He has some cash flow and wants to invest in a new project. Juan's assistant provides an evaluation and estimates the nominal returns that Juan would earn if he invests in the project. Juan reads the evaluation and makes the decision based on the real terms after factoring in inflation. Good Financial Decision? Yes No Joe is an average investor. His financial advisor gave him options of investing in a company's stock A, with a o of 12%, and stock B, with a o of 9%. Both stocks have the same expected return of 16%. Joe can pick only one stock and decides to invest in stock A. Good Financial Decision? Yes No