Podcast
Questions and Answers
If you invest £100 in a security and receive a dividend of £3 in year 1 and sell the security for £108 in year 1, what is your total return?
If you invest £100 in a security and receive a dividend of £3 in year 1 and sell the security for £108 in year 1, what is your total return?
- 8%
- 10%
- 11% (correct)
- 3%
What is the 3-year holding period return if the annual returns are 5%, 12%, and -3%?
What is the 3-year holding period return if the annual returns are 5%, 12%, and -3%?
- 14.24% (correct)
- 13.57%
- 16.40%
- 11.88%
Which of these statements is TRUE about the geometric mean return?
Which of these statements is TRUE about the geometric mean return?
- It is not affected by outliers in the data.
- It is used to calculate the average rate of return for a single period.
- It is a better measure of long-term investment performance than the arithmetic mean return. (correct)
- It is always higher than the arithmetic mean return.
If the arithmetic mean return over three years is 10%, and the annual returns are 8%, 12%, and x%, what is x?
If the arithmetic mean return over three years is 10%, and the annual returns are 8%, 12%, and x%, what is x?
Which of the following is an accurate description of the dividend yield?
Which of the following is an accurate description of the dividend yield?
What is the difference between equally and unequally weighted means?
What is the difference between equally and unequally weighted means?
What is the formula for the equally-weighted arithmetic mean?
What is the formula for the equally-weighted arithmetic mean?
What is the formula for the equally-weighted geometric mean?
What is the formula for the equally-weighted geometric mean?
What is the primary limitation of using only the mean to describe a population?
What is the primary limitation of using only the mean to describe a population?
What is the purpose of using variance in statistics?
What is the purpose of using variance in statistics?
Why are Edinburgh and Montreal's mean temperatures potentially misleading in comparing their climates?
Why are Edinburgh and Montreal's mean temperatures potentially misleading in comparing their climates?
What is a potential consequence of using a single mean to represent a population?
What is a potential consequence of using a single mean to represent a population?
What is the geometrical mean of the following numbers: 2, 4, and 8?
What is the geometrical mean of the following numbers: 2, 4, and 8?
What is the difference between arithmetical and geometrical means?
What is the difference between arithmetical and geometrical means?
Which of the following statements is TRUE about equally and unequally weighted means?
Which of the following statements is TRUE about equally and unequally weighted means?
What is the unequally weighted mean of the following values: 10, 20, and 30, with weights of 0.2, 0.3, and 0.5 respectively?
What is the unequally weighted mean of the following values: 10, 20, and 30, with weights of 0.2, 0.3, and 0.5 respectively?
In the content above, the example of a GPA calculation uses an unequally weighted mean. Why are different weights used for the MCQ and essay?
In the content above, the example of a GPA calculation uses an unequally weighted mean. Why are different weights used for the MCQ and essay?
What is the GPA of a student who scores 14/22 on the MCQ and 18/22 on the essay, if the MCQ contributes 30% to the grade and the essay 70%?
What is the GPA of a student who scores 14/22 on the MCQ and 18/22 on the essay, if the MCQ contributes 30% to the grade and the essay 70%?
What is the key difference between equally weighted and unequally weighted means, and why would someone use an unequally weighted average?
What is the key difference between equally weighted and unequally weighted means, and why would someone use an unequally weighted average?
What is the mean temperature for Edinburgh based on the provided data?
What is the mean temperature for Edinburgh based on the provided data?
What does variance measure in the context of the temperature data?
What does variance measure in the context of the temperature data?
Why can't we just use the differences from the mean to calculate variance?
Why can't we just use the differences from the mean to calculate variance?
What adjustment is made when calculating variance from a sample instead of the entire population?
What adjustment is made when calculating variance from a sample instead of the entire population?
In the variance formula, what does the term $N$ represent?
In the variance formula, what does the term $N$ represent?
Which temperature range shows higher variation based on the context provided?
Which temperature range shows higher variation based on the context provided?
What mathematical process is used in calculating variance to prevent positive and negative differences from cancelling out?
What mathematical process is used in calculating variance to prevent positive and negative differences from cancelling out?
What is the mean temperature for Montréal as derived from the data?
What is the mean temperature for Montréal as derived from the data?
What is the formula for variance when dealing with a sample?
What is the formula for variance when dealing with a sample?
What is a critical reason for calculating variance in temperature data?
What is a critical reason for calculating variance in temperature data?
What is the standard deviation of temperatures in Edinburgh?
What is the standard deviation of temperatures in Edinburgh?
What is the formula used to calculate variance?
What is the formula used to calculate variance?
What is the standard deviation, in the context of describing temperature differences, a measure of?
What is the standard deviation, in the context of describing temperature differences, a measure of?
What does a positive skewness value indicate for a dataset?
What does a positive skewness value indicate for a dataset?
What concept is used to describe the frequency of extreme values in a dataset?
What concept is used to describe the frequency of extreme values in a dataset?
Which of these is NOT a concept used to describe a population?
Which of these is NOT a concept used to describe a population?
How is the standard deviation calculated?
How is the standard deviation calculated?
What is the most likely reason that the variance of temperatures in Montréal is much higher than in Edinburgh?
What is the most likely reason that the variance of temperatures in Montréal is much higher than in Edinburgh?
Which of the following is a measure of dispersion in a dataset?
Which of the following is a measure of dispersion in a dataset?
What is the relationship between variance and standard deviation?
What is the relationship between variance and standard deviation?
Flashcards
Geometric Mean
Geometric Mean
The central tendency measure calculated by multiplying numbers and taking the Nth root.
Arithmetic Mean
Arithmetic Mean
The average found by adding numbers and dividing by the count.
Equally Weighted Mean
Equally Weighted Mean
A mean calculated where all observations have the same importance.
Unequally Weighted Mean
Unequally Weighted Mean
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N-th Root
N-th Root
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Contextual Use of Means
Contextual Use of Means
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Importance of Weights
Importance of Weights
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Time-Series Data
Time-Series Data
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Mean Temperature
Mean Temperature
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Variance
Variance
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Calculation of Variance
Calculation of Variance
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Population Variance Formula
Population Variance Formula
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Sample Variance
Sample Variance
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Degrees of Freedom
Degrees of Freedom
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Dispersion
Dispersion
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Scattered Data
Scattered Data
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Mathematical Expectation
Mathematical Expectation
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Equally Weighted Geometric Mean
Equally Weighted Geometric Mean
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Unequally Weighted Geometric Mean
Unequally Weighted Geometric Mean
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GPA Calculation
GPA Calculation
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Limitations of Mean
Limitations of Mean
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Population Description
Population Description
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Comparison of Means
Comparison of Means
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Holding Period Return
Holding Period Return
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Arithmetic Mean Return
Arithmetic Mean Return
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Geometric Mean Return
Geometric Mean Return
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Capital Gain
Capital Gain
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Annualized Return
Annualized Return
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Standard Deviation
Standard Deviation
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Mean
Mean
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Skewness
Skewness
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Kurtosis
Kurtosis
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Moments in Statistics
Moments in Statistics
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Third Moment
Third Moment
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Positive Skewness
Positive Skewness
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Negative Skewness
Negative Skewness
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Study Notes
Course Information
- Course code: BU5526
- Course name: Portfolio Analysis
- Lecturer(s): Dr Seungho Lee, Dr Pranjal Srivastava
- Location: Business School, University of Aberdeen
- Teaching delivery: 10 weeks, including 4 lectures and 3 tutorials per set of lectures, with a quiz to complete. Attendance is compulsory.
- Main topics: Fundamentals of portfolio theory, Capital Asset Pricing Model, Behavioral Finance, Debt securities, Alternative investments, Derivatives, and Portfolio performance evaluation.
- Assessments: Two mid-term exams (Week 31 and 39, 2025), a final exam during the exam diet, and tutorials.
- Resources: Relevant course guide, online tools (MyAberdeen Blackboard, MyTimetable).
Portfolio Management
- Definition (Financial Times): Managing money for financial institutions or individuals to maximize profit.
- Definition (Business Dictionary): Prudent administration of investable assets to achieve optimal risk-reward ratios.
- Participants: Investors, Portfolio Managers (industry title, broad meaning), traders, advisors, loan officers, analysts, etc.
Asset Pricing
- Definition of an asset: Something belonging to an individual or a business with value or the power to earn money.
- Main financial assets: Stock, Bonds, Derivates.
- Asset pricing: Assets are priced by the market.
- Price discovery: The process for obtaining a fair price for assets, which can vary depending on certain factors like market types, buyer/seller behaviour, etc.
- Asset pricing concept: Estimating the price of an asset can be done via the current value of its cash flows.
Mathematical Toolkit
- Three mathematical concepts: Mean, Variance, and Higher moments and distribution.
- Three financial concepts: Return, Expected returns, Portfolio return and variance.
- Mean (arithmetic mean): The sum of observations divided by the number of observations (equal weights), or the weighted average of observations, if weights are unequal.
- Mean (geometric mean): The Nth root of the product of N observations.
- Variance: The average of the squared differences from the mean.
- Standard deviation (volatility): The square root of the variance.
Expected Returns
- Determining expected return from historical data
- Calculating the expected return through gut feeling or modeling.
- Historical average: Assumes the same returns as the preceding year.
- Historical average + variance: Same returns as preceding year, but with the standard deviation considered.
Portfolio Variance
- Calculating portfolio variance requires analyzing the covariance between assets.
- Covariance: Measures how two assets move in tandem.
- Positive covariance: Assets tend to move in the same direction.
- Negative covariance: Assets tend to move in opposite directions.
- Correlation: A better interpretation of covariance, ranges from -1 to +1.
- Correlations and Portfolio risk: Portfolio risk decreases when the correlation between assets is not perfect.
Important Assumptions of Mean-Variance Analysis
- In finance, the most common approach for describing assets is the mean and variance.
- This approach assumes that returns are normally distributed.
- A normal distribution has a mean equal to median, is completely defined by mean and variance, and is symmetric around the mean (68%, 95%, 99% of observations are +/- 1, 2, and 3 standard deviations, respectively).
- In reality, assets have different characteristics. For example, returns are skewed (not symmetric around the mean) with a large distribution of extreme values (high kurtosis)
Recommended Textbooks
- McMillan, Michael et al., Investments: Principles of Portfolio and Equity Analysis
- Zvi Bodie, Alex Kane, and Alan J. Marcus, Investments (latest Global edition)
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Description
Test your understanding of Portfolio Analysis concepts with this quiz based on the BU5526 course. Covering fundamentals of portfolio theory, CAPM, behavioral finance, and more, this quiz is essential for your mastery of the subject. Prepare to evaluate investment strategies and portfolio performance.
