Risk Management Models Questions 2022

Risk Management
Models
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Risk Management Models
Contents
Question 1................................................................................................................. 3
Question 2................................................................................................................. 3
Question 3................................................................................................................. 4
Question 4................................................................................................................. 4
Question 5................................................................................................................. 5
Bibliography.............................................................................................................. 6
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Risk Management Models
Question 1
The choice of the stocks in the portfolio depends upon the investment strategy chosen by the
investor and their motive of investment. The risk tolerance and personal investment goals are
the key factors behind the selection of stocks in a portfolio. The selection of stocks can be
done by applying an asset allocation strategy. Stocks should be chosen based on the risk they
carry; desired equity portion in the portfolio, market capitalization, and the investor should
continuously monitor the fluctuation in price levels of such stocks. While choosing a bong its
coupon rate, yield, maturity time and rating should be considered. Mutual funds and
Exchange-Traded funds can also be considered by the investor as they provide lesser risk and
minimum need for monitoring (Gallant, 2018). The allocation of funds should be done to
ensure that the return justifies the risk taken for such an investment. The weight given to each
element of the portfolio should be analyzed from time to time. The tax consequences of
balancing a portfolio should also be kept under consideration before making an investment
decision. Thus, the selection of stock and allocating funds to stock should be done after
considering all the factors related to investment and should be revised time to time (ET,
2018).
Question 2
We will apply the dividend growth model to compute the share price.
P = D1/k-g
D0 $0.27
Growth rate 6%
Cost of Capital 12%
P0 $4.77
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