代写 BUSM4160 Managerial Finance

代写 BUSM4160 Managerial Finance

BUSM4160   13 April 2016 Mini-Assignment 3 Managerial Finance BUSM4160 Mini Assignment 3: Risk and Return Instructions Due: 27 April mid-night. Submission process: Upload to Turnitin Referencing: Harvard Style – Please cite all your sources. Words: 750 (excluding cover page & references) Topic Volatility within global share markets has increased significantly since mid 2015. Commentators believe this is being driven by a slowdown in growth in China and other emerging markets; the increase in US interest rates, and the continued slowdown in commodity markets. Figure :1 Graphic represents the volatility of the global equity market, as measured by the MSCI All Country World Index (in AUD) over the past 10 years, on a rolling 90-day basis. You are one of the investment advisers to a high net wealth family group that is concerned about the current market volatility and how it will effect their equity investments. You are asked to prepare a business brief that responds to the following: 1) Define what we mean by “volatility” in financial markets, and what it means for investors when volatility increases. How would an economic slowdown in China, a rise in US interest rates and a slowdown in commodity prices create volatility? BUSM4160   13 April 2016 Mini-Assignment 3 2) Explain Figure 1: What does the MSCI graphic tell us about recent market volatility? Are the concerns about increasing volatility justified? 3) At the last investment committee meeting one of the brokers has advised your client not to invest in oil shares because they have a high standard deviation. Do you agree with the broker’s statement and is this sound advice for a risk-averse investor? Why or why not? 4) Given the current situation what would your exposure recommendation be if your clients wish to reduce their risk exposure? (This should be your conclusion). Some pointers (not conclusive): 1) Discussion should include: • Greater uncertainty; which means share value could increase as well as decrease…higher risk, higher return…. just moving down doesn’t mean everyone is a loser, think of the big short. • Re: How would an economic slowdown in China, a rise in US interest rates and a slowdown in commodity prices would create volatility? > It increases uncertainty 2) Re explain figure 1: • Volatility is below the long-term average if we adjust for the GFC, then it may be higher, because that period was extreme… 3) Re standard deviation & investing in ‘risky’ oil stocks discussion of some of the following: • The standard deviation of a security is a measure of how ‘risky’ the security is: the higher the standard deviation, the higher the risk; • From the standpoint of a risk adverse investor, the broker is actually providing sound advice when looking at the oil industry stocks in isolation; • High standard deviation of the oil industry stocks implies greater risk and a risk adverse investor dislikes risk; • However, when the oil industry stock is looked at in the context of a diversified portfolio, then that risk can substantially be reduced; • Diversification can substantially reduce the variability of returns without an equivalent reduction in expected returns: reduction in risk arises because worse than expected returns from one asset e.g. the oil industry stocks are offset by better than expected returns from another. •  Not all risk can be diversified away (systematic portion of the risk), and this risk affects the large number of assets … BUSM4160   13 April 2016 Mini-Assignment 3

代写 BUSM4160 Managerial Finance 4) This should be a conclusion based on above discussion and could advocate for some of the following (depending on what was argued before and what evidence/ sources were presented): • If you believe the case for investing in global equities is till a good portfolio diversification strategy, then it makes sense to stay the course and perhaps even top up exposure to global equities; • Also: It is rarely a good idea to sell growth assets after the volatility (share price declines) has already occurred; • Equity markets do recover and environments of heightened risk aversion often present good opportunities to top up exposure to that asset classes; • Buying equities at the height of the GFC or during other bear market periods proved to be a great entry point into equities.

代写 BUSM4160 Managerial Finance