Question

2. You are advising several individual investors who are interested in investing in portfolios comprised of both stocks and bonds. In preparation for meeting with these various investors, you plot the investment opportunity set for stocks and bonds. Given this information, why might you advise some of the investors to invest in a portfolio other than the minimum variance portfolio

Answer #1

A minimum variance portfolio is combination of portfolio of securities that minimizes the price volatility of overall portfolio.High variance in a stock is related to higher risk and return while low variance is related to low risk and return. High variance stocks is good for risk takers while low variance is good for conservative investors.

However according to Modern Portfolio theory, we can reduce variance or risk without compromising and maximize expected return by asset allocation. We can build diversified portfolio with not just assets but also bonds, commodities, insurance products, REITs etc.

So, I advised some of the onvestors to invest in a portfolio other than minimum variance portfolio due to different factors related to the 1) level of risk they are willing to take 2) Expected return 3) Age of the individual 4) Future goals and 5) Products which will maximize their returns

Michael and Janine are both investors wanting to purchase
investment portfolios. The expected return, standard deviation and
beta of various investments are shown in the following table:
Investment
Average
return over last year (% pa)
Standard
Deviation (% pa)
Beta
Apocryphal Industries
16
11
1.8
Bona Fide Ltd
13
9
1.3
Market Index
11
2
1
10 year Bond
5
3
0
Michael wants a portfolio that has an expected return of 12% pa
and that contains only Apocryphal Industries...

You are a financial advisor who offers investment advice to your
clients. There are two risky assets in the market: portfolio X and
portfolio Y. X has an expected return of 15% and standard deviation
of 35%. The expected return and standard deviation for Y is 20% and
45% respectively. The correlation between the two portfolios is
0.2. The rate of risk-free asset, T-bill, is 5%.
a) Peter is one of your clients and he can only invest in T-bill...

CASE – 1: (Based on Ch-1: Investing Setting) –
Soon after your graduation, you would be all set for your career
path. As you have studied and learnt several investment and
portfolio related theories and concepts, you would be interested to
start investing and creating portfolio right from the beginning
phase of your career. Before you start doing so, it would be ideal
to recap those important concepts and theories. You may want to
write down those in brief especially...

19. The year is 2006. You are the manager of a university
endowment and are combining stocks, bonds, and real estate funds.
Your mandate is to find the optimal portfolio that has an expected
return of 8% per year. What optimization problem would you try to
solve?
Minimize risk for an expected portfolio return of 8% per
year
Maximize expected return for a volatility target of 8% per
year
None of these
Maximize the Sharpe ratio with no constraints
Not...

Read the article ‘How stocks test young investors’.
When deciding how much to invest in stocks, Mr Kitces says, your
first consideration should be how comfortable you are with risk to
begin with. This is what’s known as your ‘risk tolerance.
’ The problem: Investors — particularly young ones — are
notoriously bad at predicting how much money they are willing to
lose. Compounding the problem, young investors, due to their lack
of experience in the markets and overall financial...

INVESTING YOUR OWN PORTFOLIO
You have won the jackpot of a European Lottery with a prize of
€30 000. After distributing a portion of the prize to a local
charity, you decide that it is a good idea to invest the rest of
the prize. However, you are doubtful about which asset class or
financial vehicle is more suitable given the current international
context.
Bear in mind that you are in your early twenties and that your
financial restrictions are...

1. If you were able to put together a portfolio that completely
eliminated all risk, what return would you expect to earn and
why?This question is a real eye opener, in that with great risk can
come great reward. The asset classes I can think of to present to
me a zero-risk situation in the portfolio would be the following:
Savings account, CD certificate, bonds, treasuries, and ponds. I
expect to get minimal and low return on investment. Obviously the...

You are required to research and write a 2500-word individual
report in response to a case scenario. This assessment offers you
an opportunity to apply the knowledge you gained about
microservices architecture in Part A. You are required to use the
case as context to write a report for both business and IT
stakeholders explaining the advantages and disadvantages of
microservices architecture and the benefits it can offer an
organisation. You will need to demonstrate your ability to identify
business...

Walt Davies and Shane O’Brien are district managers for Lee,
Inc. Over the years, as they moved through the firm’s sales
organization, they became (and still remain) close friends. Walt,
who is 33 years old, currently lives in Princeton, New Jersey.
Shane, who is 35, lives in Houston, Texas. Recently, at the
national sales meeting, they were discussing various company
matters, as well as bringing each other up to date on their
families, when the subject of investments came up....

CASE: Sharesies: NZ investment platform
Everyday investment company Sharesies was launched in February
2017, after conducting research on New Zealanders’ attitudes
towards investing. Prior to launching the company, the co-founders
interviewed over 200 people asking them “If I gave you $50
right now, and you had to do something with it in the next 5
minutes what would you do?” Only 5 out of 200 people chose an
option to save or invest the $50. More popular options were bills,...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 15 minutes ago

asked 30 minutes ago

asked 30 minutes ago

asked 42 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago