October 2011
Beginner
576 pages
16h 32m
English
Content preview from Equity Valuation and Portfolio ManagementBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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QUESTIONS
Questions 1 through 5 pertain to the following information:
Assume that a portfolio managers constructs an equally-weighted portfolio of two stocks from different industries and wants to analyze the risk of this portfolio using a two-factor model in the following form:
where FIND is the industry factor and FSIZE is the size factor return, β and l are the security loadings to these two factors respectively and 
is the idiosyncratic return.
Using statistical techniques, the portfolio manager finds that the first stock has an industry beta of β1 = 1.4 and the second stock has an industry beta of β2 = 0.8. This means that the first stock moves more than average when its industry moves in a certain direction and the opposite is true for the second stock. The loading to the size factor (l) is a function of the market value of the company and is standardized such that it has a mean of 0 and a standard deviation of 1. Using this formulation, the portfolio manager finds that the first stock has a size loading of l1= −1. This means that the market value of this stock is 1 standard deviation smaller than the market average. The second stock has a size loading of l2 = 2, which tells us that it belongs to a large-cap company.
The industry factor corresponding to the first stock has a ...
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I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.Addison B.
I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.Amir M.
I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.