INVESTMENTS-CONNECT PLUS ACCESS
11th Edition
ISBN: 2810022611546
Author: Bodie
Publisher: MCG
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Chapter 27, Problem 1PS
Summary Introduction
To analyse: The effect on security analysis if the application of the BL model to a stock and bond portfolio is done.
Introduction:
BL model: BL model refers to the Black-Litterman model. It is supposed to be an analytical tool that is used by
Expert Solution & Answer
Answer to Problem 1PS
The quality of bond spread and the dividend yield are effects of security analysis.
Explanation of Solution
Security analysis plays a prominent role. So, opinions about the performance of bonds to stock will definitely have an effect on how the analysis is done. For instance, if there is a decrease in the interest rate of bonds, there is a huge expectation that the bonds will perform well. This sort of prediction about the bonds will reflect the quality of the bond spread. Apart from this, the dividend yield also means a lot to the corporations facing financial stress and have high leverage. Based on the range of use, it recommends a top-down approach quite suitable from the input of the BL model. The feedback from the opposite direction cannot be ruled out.
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