One concentrated employer-stock position, blended step by step with partners of falling correlation, is the case in the MT483 diversification analysis for Unit 4. Searches like "mt 483 unit 4 assignment example", "mt483 unit 4 sample" and "mt483 unit 4 example" land here.
What a finished MT483 Unit 4 diversification analysis looks like
Two tables and a short panel fill four pages. Assumptions are labeled composite: the employer stock carries 34 percent volatility, the S&P 500 fund 16 and an intermediate bond fund 5.5, with correlations to the employer stock of 0.55 and 0.10. At Kevin's current 60 percent the portfolio's volatility is 24.51 percent, below the 26.8 a simple weighted average suggests. Cutting the employer stock to 20 percent lowers it to 17.49 with the index fund partner or 8.46 with the bond fund. A panel holds the mix at half and half and moves only correlation, from 0.9 to 0.1, and volatility falls from 24.45 to 19.50. A one-in-twenty bad year at 60 percent, under a normal approximation with an assumed 8 percent mean, costs about 27,471 dollars.
How a MT483 Unit 4 example is structured
Kevin's position as held, not a textbook pair, is the starting point, because the prompt concerns what diversification does for an actual mix. Assumptions come first and are labeled. The two-asset formula is written once, with its cross term explained as the place correlation works, and 60 percent employer stock is substituted in full. The first table steps the employer weight down from 60 to zero with each partner, showing that the lower-correlation bond fund removes risk faster at every step. The panel then isolates correlation as the only moving input. A section on concentration beyond volatility follows: of the employer stock's own variance, only about 30 percent moves with the market, and the rest belongs to the company alone, the same company paying Kevin. Benartzi's 2001 study of employer stock in 401(k) plans supplies evidence that employees extrapolate past returns into such holdings.
The position as held
Fifty-one thousand dollars in employer stock and 34,000 in an index fund, with a paycheck from the same company.
Where correlation enters
The cross term written out at 60 percent, turning a 26.8 percent weighted average into 24.51 percent volatility.
Two partners, stepped down
Index fund and bond fund each paired with shrinking employer weights, the bond fund cutting risk faster at every step.
Correlation alone, moved
Half and half with a 16 percent partner: volatility of 24.45 at 0.9 correlation falling to 19.50 at 0.1.
Risk the market does not explain
About 70 percent of the employer stock's variance is company-specific, from the same company that pays Kevin's wages.
Where marks go in MT483 Unit 4
Asserting that diversification helps, without computing portfolio volatility from the correlation, skips the unit's central calculation. Graders typically check the cross term first, since averaging the two volatilities overstates risk by more than two points at 60 percent. Correlation assumptions need a label and, if drawn from data, a period. Stopping at the index fund partner overlooks the stronger effect of a low-correlation asset. Human capital is the part most often absent: a paycheck and a portfolio tied to one employer compound each other's risk, and saying so is what separates this case from a generic two-asset problem. Evidence on employer stock should be cited to its study and year. Recommending that a real reader sell company shares, rather than analyzing the composite position, oversteps the assignment.
Get a MT483 Unit 4 example written to your instructions
Unit 4 prompts may supply two assets and a correlation, or ask for an investor's actual holdings. Whatever yours specifies, include it with your instructor's rubric, and the first MT483 analysis is prepared free within 24-48h: the cross term shown, partners compared and every assumption labeled, formatted as your instructor directs.
MT483 Unit 4 questions, answered
Where do correlation figures come from?
Either from the prompt or from historical returns you compute, such as five years of monthly data for each asset. Name the period and source, and note that correlations shift over time and often rise in sell-offs. A short sensitivity panel, like the one here, shows how much the conclusion depends on the figure you chose.
Why include the employee's salary in a diversification analysis?
Because future earnings are a large asset for a working investor, and they are exposed to the employer's fortunes. Holding company stock adds to that exposure instead of offsetting it. The analysis does not need to value human capital precisely; noting that the portfolio and the paycheck share one source of risk is normally sufficient here.
Does diversification reduce returns?
Not necessarily in expectation, though it removes the chance of the outsized gain a single stock can deliver. Company-specific risk is not rewarded with higher expected return in the standard theory, because investors can remove it cheaply. Your analysis can say that diversifying gives up the lottery ticket while cutting risk the market does not pay anyone to hold.