Mr Smith and Ms Smith are analysts specializing in investments. The need to respond to the following problems:

 

a) What are the differences between equity and fixed-income securities? 

 

b) They analyze an equally-weighted portfolio consisting of stock and gold. They are evaluating whether they shall include gold into their stock as an equally weighted portfolio. The stock offers an expected rate of return of 15% with a standard deviation of 22%. Gold offers an expected return of 6% with a standard deviation of 28%.

 Explain (with sufficient calculations) whether they shall include gold in their existing stock (or not)! 

 

c) In the investment forum, they met one of their friends, namely Mrs. Hung. Mrs. Hung told them that she had beaten the European stock market for each of the last three years. Her claim is indeed factual. Does this shake their belief in efficient markets? Explain!

Answer rating: 100% (QA)

a The main difference between equity and fixedincome securities is the nature of the investment Equity securities represent ownership in a company whi... View the full answer