1. Short Answer Questions (12 Marks) a) If the stock market is on the strong for
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1. Short Answer Questions (12 Marks) a) If the stock market is on the strong form efficient, do we still need portfolio managers? If we do, what can portfolio managers do for investors? Can portfolio managers beat market? If we do not, explain reasons. 9 Marks) b) An investment business would like to growth quickly, please list three potential shortcuts that could help the business quickly success in a short-term? (3 Marks) of He A 30-year maturity bond making annual coupon payments with a coupon rate of 12% as duration of 11.54 years and convexity of 192.4. The bond currently sells at a yield to maturity of 8%. lre C1 What will be the bond price now? To find the price of the bond if its yield to maturity falls to 7% or rises to 9%. What prices for the bond at these new yields would be predicted by the duration rule and the duration-with-convexity rule? What is the percentage error for each rule? What do you conclude about the accuracy of the two rules? a) b) c) (8 Marks)Explanation / Answer
Since it contains two seperate questions, so i would answer first question only with two subparts as well.
a) No matter which condition the stock market is in, we always require portfolio managers to manager the fund or portfolios. Portfolio managers know the pulse of the market and accordingly can manage the performance of the fund or capital invested. Not everyone is market pro and hence needs an expert hand to go through the headwinds of the market. If portfolio managers are there then they can effectively manage the money of the investors to generate required returns.
Most of the times portfolio managers beat the markets or atleast match the market returns. This is because they timely shift the funds between various stocks or asset classes in order to create an impact from diversification and hence generate an overall average return which is above the benchmark market return.
b) There are verious shortcuts to generate quick returns on the short term:
1) Flash sales - By introducing heavy sale/discount, we can quickly clear the inventories and hence generate sales for the business.
2) Marketing - By running an efficient marketing campaign we can create an awareness in the market which helps in pushing the sales of the company and hence generating good returns.
3) Debt - By acquiring optimal debt, tax expense can be reduced and hence profits can be maximised for shareholders.
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