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    Money Managers Differ Greatly

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    1. Kauai Surf Boards seeking raise capital a large group investors expand operations. suppose investors S&P 500 portfolio, a volatility 15% expected return 10%. The investment expected a volatility 30% a 15% correlation S&P 500. If risk-free interest 4%, coast capital Kauai Surf Boards' expansion?

    2. Money Managers differ greatly on how they value equities. Some calculate the Price per Earnings ratios, based on past financial results. Others use the Price to Earnings Growth rate, predicting future results. Some go strictly by the Beta of a stock. Some feel dollar cost averaging is the best and don't worry about the current values. Some buy low and sell high. Some hold for long periods, some are day traders. Some feel a stock is simply worth whatever another individual will pay for it. Some feel the market has turned into a forum for gambling and is manipulated to the point it cannot be accurately valued. Added to all this, foreign companies don't have the same standards in reporting financial results. If you were given $5 million today to invest for yourself with the objective of the highest return, what would you do? What strategy would you use to pick investments? What return would you consider adequate? Explain your reasoning.

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    Solution Preview

    Question 1
    Covariance of the asset to S&P 500 return = (0.15)*(0.30)/0.15 = 0.30
    Cost of capital = 5% + expected return of the asset
    However, the information provided is not complete for me to be able to compute the expected return on the asset. Please advice.

    Question 2
    If I were given $5 million today to invest for myself with the objective of the highest returns, then what I will do is to create a ...

    Solution Summary

    How the value equities differ from money managers are determined.