Stock and Bond Investments - Chapter 13 Assignment - Part 1

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Fox Valley Technical College *

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Jan 9, 2024

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Stock & Bond Investments: Chapter 13 (Part 1) Assignment 1. Describe asset allocation. Asset allocation is another term for diversifying your portfolio into different assets to not make it so reliant on one investment/asset. 2. Explain how to use an asset allocation system to construct a portfolio consistent with your investment objectives. Asset allocation involves also strategically distributing your investment funds throughout every kind of security. For example, a bond ladder would not be a form of asset allocation because this is strictly one security. So, for a portfolio, you could use different securities to build a portfolio. 3. Discuss the data and indexes needed to measure and compare your investment performance. Some of the date and indexes we need to look at are rate or return, the benchmark index, volatility measures, alpha and beta, and the expense costs/ratios. 4. Describe the role and logic of dollar-cost averaging. The role of dollar-cost averaging is an investment strategy that requires you to invest a fixed amount of money at certain intervals regardless of price. This strategy is used to reduce the impact of market volatility on your overall investment. 5. Describe the role and logic of constant-ratio plans. These are designed to protect a portfolio from significant losses while allowing for capital appreciation. These plans involve adjusting the allocation between risky and less risky assets during certain market conditions. 6. Describe the role and logic of variable-ratio plans. This would be adjusting an allocation of assets following other VARIABLES within the portfolio or financial strategy. This would be adjusted by switching the investments in bonds, stocks, and other securities. 7. Why is it important to constantly manage and control your portfolio? It is important to constantly manage and control it as you can maximize returns while doing so. It is also important to manage it to make sure your investments are in check with the current market. For example I would not want to be invested in Tesla if they had to cancel the launch of a vehicle due to some reasons, this would be short-term and quick however it could play a role dependent on your investment scale. 8. Briefly discuss holding period return and yield as measures of investment return. Are they equivalent? Explain. Yield as measures of investment return is the income generated by an investment relative to its cost or current value. They are calculated by many calculations. Holding period return is a calculation of the return earned or incurred on an investment while holding on the investment, such as a stock. They are not the same, however they are very similar.

9. Under what three conditions would an investment holding be a candidate for sale? What must be true of the expected return on a risky investment when compared with the return of a low risk investment? My things that I would begin to consider selling the stock, is when they hit an all-time high and they appear to begin slowing down. Another one would be if their company sales are trending down, for example, I would invest into apple around June (pre IPhone release) and then sell the stock in November/December as the price should project to go down. I would also consider selling if the company is struggling heavily and appears to only keep going down. A risky investment would give you way larger returns or losses than low risk investment as that would be the risk you were taking. 10. Explain a limit and stop-loss order. What role does a limit and stop-loss order play in investment timing and timing investment sales? A stop-loss order is where you put a limit on how low the investment can go before it automatically gets sold and you “stop the loss”. A limit is the opposite, where you sell when it hits a higher price and what you invested it into “typically”.

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