Suppose you have to develop a portfolio for your client, what factors you will keep in...

Suppose you have to develop a portfolio for your client, what factors you will keep in mind while developing that portfolio. Discuss in the light of separation property. assume risk and other factor at your own

Expert Solution

If I will have to develop a Portfolio for my client,I would be looking various factors in my mind-

A.I would be looking for the risk taking ability of the client and risk tolerance along with the risk preference of the client.

B.I would also be looking for the time duration of the client in order to make a Portfolio.

C.I would be trying to make an optimum risk portfolio in which there would be Maximum possibility of generation of higher rate of return and minimum possibility of risk.

As per the separation property is concerned, it is believed that there are two philosophy upon which I will be trying to make my decision. one is the creation of an optimal risky portfolio in which it is to be seen in which portfolio is generating maximum sharpe ratio,and it will be same for all the clients. The second part will be tailoring the Risk Aversion according to the need of the client and if the client is risk loving, I would be allocating his portfolio into such assets which will be having some uncertainty but it will also be having possibility of generation of higher rate of return, so I would be trying to maximize the rate of return of my client by minimization of the risk and I will be trying to maximize in overall rate of return.

jeff jeffy answered 2 years ago

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