Case Study 2 Portfolio Management

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Joined: Mon Apr 23, 2012 9:45 pm

Case Study 2 Portfolio Management

Postby mail2arungoel » Thu Apr 26, 2012 12:44 am

The Question No. 5 cannot be answered from the data given in the case study.
The case is :
Q.1 to 6 can be answered using the following case
Gordon Scott a CFA Level 2 candidate makes the following statements
Statement 1:”There are various impediments to international capital mobility including: i) psychological barriers; ii) political risks; iii) transaction costs; iv) discriminatory taxation; v) physical distances; and vi) legal risks.”
Statement 2: “While using the extended CAPM we use the domestic CAPM with the risk-free rate and the market capitalization weighted portfolio of all risky assets in the world for the market portfolio.”
Scott then decides to calculate the expected return from two foreign stocks. He gathers the following data: The world market risk premium is 5.5%. The currency risk premium for the British and German stock is 1.25% and 2.1% respectively. The interest rate on one-year risk-free bonds is 4.5% in the United States.

The Question is:
The expected return of the two stocks using the ICAPM is closest to
Stock A/Stock B

Arun Goel


Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: Case Study 2 Portfolio Management

Postby content.pristine » Mon May 14, 2012 3:47 pm

Thanks Arun,
A table was missing from the question. This was rectified..

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