代写 BUSM4160 Managerial Finance
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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
