Home > DB234 Personal investment in an uncertain world

Question: TMA02 Part A Question 1 a, b, c and d
Part A Question 2 a, b, c and d
[Word count: 932]

TMA02 Part B Compare the performance, risk and charges for the three funds reported in Table 2. To what extent might these data provide useful evidence to guide an investor in choosing between an active or passive approach to investing? (50 marks) [Word count: 1146]

DB234 Personal investment in an uncertain world (2017, Social sciences, Undergraduate 2nd year, 85%)

Answer: Question 1
• a.
o i. Naïve diversification is a way of diversifying a portfolio by investing in many different shares without using any calculations regarding risk and return. In contrast, Markowitz diversification is a strategy where an investor, using calculations, creates a portfolio in order to reduce risk but without jeopardising the returns (Rutterford, 2010, p. 132). Diversification by either naïve or Markowitz method reduces specific risk – risk that is specific to certain industries or companies. It does not reduce systematic risk – risk that might affect all of the stock market – interest rates, economic conditions.
o ii. Higher possible returns are usually indicative of higher risk. By investing in two different funds that offer a negative correlation coefficient a small investor can hope for higher returns but lower risk. The level of risk in combining two diff...(short extract)

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  • Subject: Economics
  • Course: DB234 Personal investment in an uncertain world
  • Level: Degree
  • Year: 1st
  • Mark: 85%
  • Words: 2078
  • Date submitted: November 04, 2019
  • Date written: November, 2017
  • References: No
  • Document type: Essay*
  • Essay ID: 8755

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