Investment (FIN403)

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College of Administrative and Financial Sciences

Assignment-2

Deadline: (30/10/2022 @ 23:59 PM)

Course Name: InvestmentStudent’s Name:
Course Code: FIN403Student’s ID Number:
Trimester: 1stCRN:
Academic Year: 1443/1444 H, 1st Trimester

For Instructor’s Use only:

Instructor’s Name:
Students’ Grade:   /10Level of Marks: High/Middle/Low

Instructions – PLEASE READ THEM CAREFULLY

  • This assignment is an individual assignment.
  • The Assignment must be submitted only in WORD format via allocated folder on Blackboard.
  • Assignments submitted through email will not be accepted.
  • Students are advised to make their work clear and well presented. This also includes filling your information on the cover page.
  • Students must mention question number clearly in their answer.
  • Late submitted assignments will NOT be entertained.
  • Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
  • All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).

Submissions without this cover page will NOT be accepted.

Assignment Questions

Q1:  Why do most investors prefer to hold a diversified portfolio of securities as opposed to placing all of their wealth in a single asset?

1. Why do most investors hold diversified portfolios?

Investors hold diversified portfolios in order to reduce risk, to lower the variance of the

Portfolio. Variance is considered a measure of risk of the portfolio and is one of the many

financial tools used. A diversified portfolio should accomplish this because the returns for the

alternative  assets  should  not   be  correlated   so  the   variance   of   the   total  portfolio   will  be

generally reduced.

2. W

1. Why do most investors hold diversified portfolios?

Investors hold diversified portfolios in order to reduce risk, to lower the variance of the

Portfolio. Variance is considered a measure of risk of the portfolio and is one of the many

financial tools used. A diversified portfolio should accomplish this because the returns for the

alternative  assets  should  not   be  correlated   so  the   variance   of   the   total  portfolio   will  be

generally reduced.

2.

Q2: Given the following financial data, compute:

a. Return on equity.

b. Quick ratio.

c. Long-term debt to equity.

d. Fixed-charge coverage.

Assets: 
Cash   $ 2,500
Accounts receivable   3,000
Inventory       6,500
Fixed assets    8,000
Total assets    $20,000
  
Liabilities and stockholders’ equity: 
Short-term debt          $ 3,000
Long-term debt          2,000
Stockholders’ equity  15,000
Total liabilities and stockholders’ equity      $20,000
  
Income before fixed charges and taxes         $ 4,400
Interest payments       800
Lease payment           400
Taxes (35 percent tax rate)    1,120
Net income (after-taxes)        $ 2,080

Q3: Explain the benefits derived from investing in deep discount bonds.

Q4: Explain how to manage bond portfolios and what are the portfolio management strategies.