18. As the dollar falls, a. foreign investors owning U.S. stocks suffer. b. U.S.
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18. As the dollar falls, a. foreign investors owning U.S. stocks suffer. b. U.S. investors owning U.S. stocks suffer. c. U.S. investors owning foreign stocks suffer. d. foreign investors owning foreign stocks suffer. 19. Portfolio weights are found by: a. dividing standard deviation by expected value b. calculating the percentage each asset's value to the tota c. calculating the return of each asset to total portfolio ret d. dividing expected value by the standard deviation 20. Which of the following statements regarding expected a. It can be higher than the weighted average expected re b. It can be lower than the weighted average return of the c. It can never be higher or lower than the weighted aver assets d. Expected return of a portfolio is impossible to calculaExplanation / Answer
Answer : 18(a) As the dollar falls Foreign investors will lose,because suppose I am a foreign investor and my currency is L. Suppose the exchange rate was 1$ = 65L, and also suppose that I am supposed to get 1$ as Dividend. Suppose the dollar falls to 1$= 60L, then I will get 60L instead of 65L, so I will lose.
Answer : 19(b) : Portfolio weights are calculated by calculating percentage of each asset’s value to the total value of all portfolios.
Suppose,I have 3 portfolios A, B & C. Values are given below:
A = 30$
B = 25$
C = 45$
Total=100$
We calculate % of each portfolios (since the total is 100$, percentage of each to the total is same as the value)
A= 30%
B= 25%
C= 45%
So, the weights of A, B & C are 30%,25% and 45% respectively.
How this is used: Suppose we have the total budget of $100,000 and we want to invest A, B and C in the same portfolio weights as before, so we get portfolio investment as:
A: = $30,000
B:= $25,000
C:= $45,000
Total:$100,000
Answer : 20(c) : expected return of a portfolio can never be higher or lower than the weighted average return of the assets.
Portfolio A: return 30%
Portfolio B : return 25%
Portfolio C : return 45%
We have used the same numbers in all the examples to make it easier to understand.
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