Monday, February 10, 2020

Security and Portfolio Analysis (MBA course) Essay - 1

Security and Portfolio Analysis (MBA course) - Essay Example ans, that the price of the security has moved at a pace less than the market volatility while a value higher than the price of the security means a higher rate of volatility. However, the greater the volatility, the greater the returns, of course accompanied by an equally greater risk. Next the trustee alleges that the common stock performance was specially poor for the five year period. The common stock of ATC was 13.3% 14.3% while the Standard & Poor’s 500 Stock Index stood at 13.8% 21.1% over the same period. It is clear that the common stock of ATC had stagnated just with a single point value gain while the Standard & Poor’s Index gained 7.3%. Again the trustee scores a point. Once again it might have been due to a poor investment decision in choosing to buy stocks that were risk-free but gave lower returns. His next allegation is focused on Treasury Bills, a very secure investment, though again the return is questionably lower. US Treasury Bills during the period have gained 3.8%. He continues to talk about the assumed actuarial rate of return. Basic actuarial formulas used to calculate benefits and contributions that are needed to fund those benefits, are based on a series of assumptions such as individual life expectancies, employer and employee contributions, possible returns on investment, salary increments and inflation rate. It is very rare that current plan assets would equal the current accrued plan benefits. So the probability is that a constant actuarial rate of return equal to 6.0% over the period would not match the accrued plan benefits. . Passive investing is the opposite of active investing and involves a buy-and-hold strategy. It is often identified with index tracking. Those who favour it, argue that the market is indisputably efficient, and therefore efforts to outperform the market are likely to produce nothing but a rise in costs. It is also assumed that as much as there are people who might succeed in beating the market, others

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