Homework
(1) How to be a portfolio manager:
Do basic research (Google?) on how you would become a licensed portfolio manager in a developed market (your choice of US, Hong Kong, Japan, Taiwan, etc). In half a page, describe the process touching the following topics. Please edit and pay attention to grammer.
- What qualifications do you need?
o What examinations do you need to take
o What work experience do you need
o What education experience do you need
- What type of structure is required?
o Can you do it as an individual or do you need to be sponsored by a larger company?
- What kind of fees does this entail?
o Annual/Reoccurring?
o One time costs?
- What other considerations are there?
(2) Neutral Rate
(a) Calculate the short term interest rate target given the following information:
Neutral rate: 5%
Inflation target: 3%
Expected Inflation: 6%
GDP long-term trend: 3%
Expected GDP: 5%
(b) What is the interpretation of these results?
(3) Business Cycle
Which phase of the business cycle would we most likely expect to observe rising short-term interest rates and flat bond yields?
(4) Business Cycle
Are there any attractive investments during deflationary periods?
(5) Shrinkage Estimators
An analyst forecasts the historical covariance of the returns between Tel-Pal, Inc., stock and Int-Pal, Inc., stock to be 1,024. A newly forecasted covariance matrix predicts the covariance will be 784. The analyst weights the historical covariance at 30% and the forecast at 70%. Calculate the shrinkage estimate of the covariance.
(6) Behavioral Traps
List and explain three psychological traps that would encourage an analyst to place too much weight on past information and less weight on new information.
(7) Yield Curve
A forecaster notes that the yield curve is steeply upwardly sloping. Comment on the likely monetary and fiscal policies in effect and the future of the economy.