High-quality past paper questions and answers for the ECN226 Capital Markets 1 module for the Queen Mary University of London (QMUL) Economics Course. Each question is reproduced and high-quality full-mark scores are written up clearly for each one. Great for preparing for exams, studying and solid...
FOR MORE HIGH-QUALITY PAST PAPER MODEL ANSWERS, ONLINE TUTORING AND
ECONOMICS HELP, visit LondonEconomicsTutors.co.uk.
Discounted prices compared to all other websites
ECN226 Capital Markets 1 – 2017
Questions and Answers
Question 1
a) The formula for the Sharp ratio is as follows:
𝐸𝑥𝑐𝑒𝑠𝑠 𝑅𝑒𝑡𝑢𝑟𝑛𝑠
𝑆ℎ𝑎𝑟𝑝𝑒 =
𝑆𝐷 𝑜𝑓 𝑒𝑥𝑐𝑒𝑠𝑠 𝑟𝑒𝑡𝑢𝑟𝑛𝑠
24 − 6
𝑆ℎ𝑎𝑟𝑝𝑒 = = 60
0.3
22 − 6
𝑆ℎ𝑎𝑟𝑝𝑒 = = 80
0.2
The Sharpe Ratio for B is higher, indicating that it is a better investment.
b) Assets with higher standard deviations typically provided higher expected average returns. The
Sharpe ratio provides an understanding of the return of an investment compared to its risk. The ratio
is the average return earned in excess of the risk-free rate per unit of volatility or total risk.
Question 2
Financialization is a term sometimes used to describe the development of financial capitalism during
the period from 1980 until 2010, in which debt-to-equity ratios increased and financial services
accounted for an increasing share of national income relative to other sectors. Financialization
, FOR MORE HIGH-QUALITY PAST PAPER MODEL ANSWERS, ONLINE TUTORING AND
ECONOMICS HELP, visit LondonEconomicsTutors.co.uk.
Discounted prices compared to all other websites
describes an economic process by which exchange is facilitated through the intermediation of
financial instruments. Financialization may permit real goods, services, and risks to be readily
exchangeable for currency, and thus make it easier for people to rationalize their assets and income
flows.
Five supporting facts are that:
1. The wage share of income has gone down.
2. The share of income going to rentiers has risen.
3. The income share of the lowest quintile has fallen.
4. The income share of the highest quintile has risen.
5. There has been an incredible rise in the income share of the top centile.
Question 3
The efficient frontier is the set of optimal portfolios that offers the highest expected return for a
defined level of risk or the lowest risk for a given level of expected return. One assumption in
investing is that a higher degree of risk means a higher potential return. Conversely, investors who
take on a low degree of risk have a low potential return. According to Markowitz's theory, there is an
optimal portfolio that could be designed with a perfect balance between risk and return.
Here, Portfolio W cannot lie on the Mean-Variance Efficient Frontier. This is because it has a lower
Expected Return and a higher Standard Deviation when compared to Porfolio Y. Therefore, it is a
strictly worse investment compared to Portfolio Y and therefore cannot be on the Mean-Variance
Efficient Frontier.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller londoneconomicstutors. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £3.99. You're not tied to anything after your purchase.
