Investment (FIN403)
Instructions – PLEASE READ THEM CAREFULLY
- This assignment is an individual
- The Assignment must be submitted only in WORD format via allocated folder on Blackboard.
- Assignments submitted through email will not be accepted.
- Students are advised to make their work clear and well presented. This also includes filling your information on the cover page.
- Students must mention question number clearly in their answer.
- Late submitted assignments will NOT be entertained.
- Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
- All answered must be typed using Times New Roman (size 12, double-spaced) No pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.
Assignment Questions
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?
- 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
alternative assets should not be correlated so the variance of the total portfolio will be
generally reduced.
- W
- 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
alternative assets should not be correlated so the variance of the total portfolio will be
generally reduced.
Q2: Given the following financial data, compute:
- Return on equity.
- Quick ratio.
- Long-term debt to equity.
- 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.
