Portfolio Management Part 1

Question 1

Min variance frontier

Answer 1

All the possible minimum variance portfolios (lowest stdev for given expected return)

Question 2

Efficient frontier

Answer 2

Greatest expected E(r) for each level of risk. Coincides with top portion of the minimum variance frontier.

Question 3

Equilibrium

Answer 3

When a security’s expected return and required return are equal

Question 4

Features of organisational forms (5)

Answer 4

• Business separate legal entity from owner?
• Do owners operate business/ what is relationship between owners and operators?
• Owner liability for actions and debt limited or unlimited?
• Tax treatment of profit and loss?
• Access to additional capital to fund expansion and to distribute risk

Question 5

Describe key features of corporate issuers (3)

Answer 5

• Corp is separate legal entity - register article of incorporation with regulatory body
• Owners are LL shareholders, but profits may be subject to double taxation
• Shareholders vote for board of directors who hire managers who declare dividend payments

Question 6

What is free float?

Answer 6

Corporation shares that are actively traded (not shared by insiders, strategic investors or sponsors)

Question 7

Why do investors look at ESG factors

Answer 7

1) Governments prioritising climate change and social policies through regulatory changes
2) ESG factors can impact company results (loss of goodwill, fines, poor governance leading to senior management misleading investors
3) Young investors more ESG focused