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Your client is concerned when you recommend two risky investments for his portfolio


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1. Your client is concerned when you recommend two risky investments for his portfolio.;Look at the size of those standard deviations!, he says. One of those is risky enough;if I own them both, Im taking on even more risk. Explain why this may not be not the;case. Under what circumstance would he be correct? Be sure to address the issue of;covariance/correlation.;2. After your eloquent explanation, your client figured hed read up on MPT. After learning;about the Sharpe CAPM, he tells you he wants a high beta portfolio because that will get;him more return. He says that Sharpes CAPM implies that more risk = more return. Is;he right or wrong? Explain.;3. From IBMs website in the investor relations section Read the Q3 2014 earnings release;(dated 10/20/2014).;Using the DDM P=D1/(r-g) as the valuation metric, explain which inputs likely changed;and resulted in IBMs price decline that day.;4. Using the industry life cycle model, place and justify where the following IBM businesses;fit;Microelectronics OEM Semiconductor Business;Strategic Imperative businesses;Services/ Software & Hardware;5. Based on your placement of these segments, describe what you think management;should be doing in each of them eg. Invest, divest, reallocate, cost containment etc.;6. In light of IBMs overall growth trends, is it a good or bad decision by management and;the board to buy back shares of stock? Why or Why not?;7. Perform a Dupont analysis on IBM for Q32014 vs Q3 2013. What are the main drivers;for the change in ROE? What does it suggest about IBMs business? (assume ending;period balance sheet levels are averages for the period;8. What does your Dupont analysis imply for the companys P/E and P/B ratios?;9. The third quarter EPS estimate for IBM was $4.32, the company reported $3.68. Full;year 2014 estimates have been reduced from $6.80 to $5.60 per share. The day this;was announced, IBMs share price dropped 7.1% from $182.05 to $169.10, or 7.1% In;the context of the above DDM model, does the drop in IBMs stock seem reasonable?;Justify your opinion.;10. The author of the Bank of America Merrill Lynch report says that stores with higher;square footage growth and better same store sales growth have higher P/Es. In the;context of the above DDM, why do you think thats the case?;11. The author talks a lot about investments in e-commerce. Do you think that investments;in e-commerce will lead to a sustainable competitive advantage for retailers who;embrace it or is it an investment that is required just to stay in the game. What are the;implications for valuations in both cases?;12. Some retailers are borrowing money to repurchase shares. All else being equal, what;would be the impact on ROE and what impact may that have on P/B ratios?;13. How do you think demographics impact the retail industry?


Paper#27071 | Written in 06-Dec-2015

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