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In: Finance

The Investment Management Process also considers an indivudal's "contraints"? What are these? Give an example of...

The Investment Management Process also considers an indivudal's "contraints"? What are these? Give an example of each.

Solutions

Expert Solution

The constraints of an individual are requirements or condition of an individual that may or may not allow one to invest in specific type of financial assets. Some of these are:

Ability and willingness to take risk. For example a young person will have a high ability to take risk as opposed to an old person becaus ehe has more life remaining to save. Also the same Young individual may or may not be willing to take a high risk

Liquidity requirement. For example a person may have a high payout coming let say mortgage closure. He/She shall need some cash to overcome this expense.

Time horizon constraint: A person may have a long term horizon and this shall increase the ability to take risk, a lower horizon shall decrease the same

Tax constraints: A person shall not invest in securities being taxed and may prefer tax free securities such as treasury

Unique constraint. An investor may not be willing to invest in tobacco or alchohal companies


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