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ADMS 4501 (65)
Lois King (41)


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York University
Administrative Studies
ADMS 4501
Lois King

LECTURE 1 Asset classes - Bonds - Equities - Cash - Real estates - Alternative investments ( derivatives, hedge funds, private equity funds etc) - Commodities Portfolio managers would decide on a combination of the above while taking risk return balance into consideration Portfolio management strategies: - Passive: you tend to match with an existing market index - Active: outperform on a risk adjusted basis on an underlying index, looking for alpha ( excess risk adjusted returns) Eg. Warren buffet is a stock picker, who invest in undervalued stocks. He is a bottom up portfolio manager. You could have a top down effect or a bottom up effect, both of which includes: ( following is a top down portfolio managers’ decision steps) – vice versa is for bottom up - Economy and markets - Industry - Stock and bond analysis 𝑛 𝐶𝐹 𝑡 𝑉 = ∑ 𝑡 𝑡=1 (1 + 𝐾) K ( interest) - Real Risk free rate : (RRFR) - Inflation : you wanna be compensated for RRFR and inflation -> nominal risk free rate .. - Premium: again , you wanna have a premium over the nominal risk free rate. HPR- holding period return HPY- holding period yield HPR = 𝑒𝑛𝑑𝑖𝑛𝑔 𝑣𝑎𝑙𝑢𝑒+𝐶𝐹𝑆 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑣𝑎𝑙𝑢𝑒 HPY = HPR – 1 Annual HPR = (HPR) ^ (1/n) Pg 9. Arithmetic mean return(AM) is a problem , GM is preferred. Note: when there are huge swings in the returns, there will be huge difference between AM and GM
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