Capital Markets Study Guide: APT Analysis and Portfolio Management - Prof. Tarrazon Rodon, Apuntes de Sistema Económico y Financiero

¡Descarga Capital Markets Study Guide: APT Analysis and Portfolio Management - Prof. Tarrazon Rodon y más Apuntes en PDF de Sistema Económico y Financiero solo en Docsity! Faculty of Economics and Business Department of Business CAPITAL MARKETS (102327) / FINANCIAL MARKETS ANALYSIS & PORTFOLIO MANAGEMENT (25056) Study Guide. 2013-2014. Dr. Maria-Antonia Tarrazon & Dr. Joan Montllor 1 Exercise on the APT based on the examination paper of June 2011 with additional questions On the stock exchange of The Twilight Zone, a capital market explained by two factors, three well- diversified portfolios, the stocks of the company Tomorrow-Will-Be-Better and a risk-free asset are traded with the following characteristics: Stocks Well-diversified portfolios TWBB J K L Factor 1 Factor 2 RFA Beta 1 1 0.5 0.5 0.4 1 0 0 Beta 2 -0.25 0.5 1 1 0 1 0 Exp.R (value) 13.25% 13.50% 17% 16% 15% 12% 5% Exp.R (price) 15% 18% 17% 16% 15% 12% 5% One year later, actual returns are: Actual return on stocks TWBB: 20% Actual return on factor 1: 18% Actual return on factor 2: 10% Questions: 3.1 a) Are the stocks of TWBB overvalued or undervalued? Why? b) Check the equilibrium expected rate of return on TWBB according to the APT. Explain its composition. c) Calculate the actual return on the stocks of TWBB and explain, according to the APT, how it has been generated. d) Calculate the actual return on portfolio J and explain, according to the APT, how it has been generated. Check your calculations of b), c) and d) through the suitable spreadsheet. 3.2 Explain the meaning of factor portfolio. Which role do factor portfolios play in financial markets? Which real life cases do you know? Design factor portfolio 1 using the assets available for this purpose on the stock exchange of The Twilight Zone. Comment on its composition. 3.3 Fifí Carambola has just undertaken a strategy where she has sold 40% of TWBB and 200% of portfolio L, and has bought 100% of portfolio J and 140% of portfolio K. A fee of 0.40% per asset involved in the strategy is charged to her. Explain the characteristics of her strategy, why she has done it, which return does she earn. Justify the composition of her strategy and develop it. Is it true that she is assuming no risk with her strategy? Check your calculations of 3.2) and 3.3) through the suitable spreadsheet. Faculty of Economics and Business Department of Business CAPITAL MARKETS (102327) / FINANCIAL MARKETS ANALYSIS & PORTFOLIO MANAGEMENT (25056) Study Guide. 2013-2014. Dr. Maria-Antonia Tarrazon & Dr. Joan Montllor 2 ANSWER SHEET / Extended question on the APT based on the exam of June 2011 Check your results with the spreadsheets provided at the Campus Virtual Name: ___________________________________________________________________ Group 53 Please turn the page if you need more space to answer → 3.1 a) Are the stocks of TWBB overvalued or undervalued? Why? b) Check the equilibrium expected rate of return on TWBB according to the APT: Explain its composition: c) Calculate the actual return on the stocks of TWBB: Explain, according to the APT, how it has been generated: