Lecture 12 - Final Exam Review

Question 1

Explain 3 reasons why inst. investors have increased their allocation to infrastructure investing

Answer 1

i. inflation protection
ii. better asset liability matching
iii. bond yields were so low from 2009 - 2022

Question 2

What are the 3 key elements of Blockchain technology?

Answer 2

I. Distributed/decentralized ledger that is permissionless
II. Immutable nature of the database
III. Agreed upon consensus mechanism

Question 3

What two major things has to happen to Bitcoin before it becomes adopted by institutional portfolio managers as a portion of their portfolio

Answer 3

I. Volatility has to decrease
II. Correlation Coefficient with other asset classes needs to be lowly positive (or negative) for a long period of time

Question 4

Suppose you purchase one share of Delta Corp. today for $36. At the end of year 1, you receive a $2 dividend and buy one more share for $30. At the end of year 2, you receive total dividends of $4 (i.e., $2 for each share) and sell the shares for $36.45 each. Calculate the I) Arithmetic mean

Answer 4

AM: “Average” annual return: - Based on time – calculate on a per share basis per year
R1 = (30-36+2)/36 = -4/36 = -0.1111 = -11.11%
R2 = (36.45-30+2)/30 = 8.45/30 = 0.2817 = 28.17%
AM = (-11.11 + 28.17)/2 = 0.0853 = 8.53%

Question 5

Suppose you purchase one share of Delta Corp. today for $36. At the end of year 1, you receive a $2 dividend and buy one more share for $30. At the end of year 2, you receive total dividends of $4 (i.e., $2 for each share) and sell the shares for $36.45 each. ii) Geometric mean

Answer 5

GM: = [Prod of HPRs]^1/n -1 where HPR = HPY (‘R’) +1
Also calculate on a per share basis per year, but include compounding
HPR1 = 1 + R1 = (1 + -.1111) = 0.8889
HPR2 = 1 +R2 = (1 + .2817) = 1.2817
GM = [0.8889 x 1.2817]^(1/2) -1 = 0.0674 =6.74%

Question 6

Sharpe, Treynor, Jensen, IR, Morningstar - How do we use these ratios to assess manager performance? Which situation best suits each one?

Answer 6

Sharpe ratio - when the portfolio represents the entire investment fund

Information ratio - when the portfolio representation the active portfolio to be mixed with the passive (index) portfolio

Treynor or Jensen - when the portfolio represents one portfolio of many

Morningstar - when comparing funds in the same category or sector

Question 7

Canada Employment Rate

Answer 7

60.6%

Question 8

Canada Unemployment Rate

Answer 8

6.5% | (Youth 12.8%)

Question 9

Canada Labour Force Participation Rate

Answer 9

64.8% (declining)

Question 10

Ireland Employment Rate

Answer 10

74.4%

Question 11

Ireland Unemployment Rate

Answer 11

4.2%

Question 12

Ireland Labour Force Participation Rate

Answer 12

66.0% (increasing)

Question 13

China Employment Rate

Answer 13

63.1%

Question 14

China Unemployment Rate

Answer 14

5%|(Youth 17%)

Question 15

China Labour Force Participation Rate

Answer 15

66.4% (Declining)