Investing includes risk, return, portfolio construction, asset allocation, and the evaluation of the portfolio. Discuss return...

Investing includes risk, return, portfolio construction, asset allocation, and the evaluation of the portfolio.

Discuss return as it is related to risk. What is return, component parts of return, historical returns, and the relationship of returns, and considerations in evaluating return?

Solutions

Expert Solution

Return is percentage or amount of appreciation in the investment and it also has a positive correlation with with risk. A higher rate of return requires a higher rate of risk and lower risks means lower return .So, it is dependent on the capability of an individual to take risks exposes him to the possibility of rate of return.

There are three components of returns and they are time value of money,Expected rate of inflation and the overall risks involved.

Historical returns are returns of the past of an investment and it is used for finding out with a trend analysis of past returns and drawing an inference to be used in future analysis.The relation of risk to return is positive correlation .

The consideration in evaluating returns will always be risk exposures like political risks, economic risks etc. Historic trends, Credit analysis, solvency of the firm, Dependency on external factors, Level of control etc.

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

Discuss the implications of combining a risk-free asset with a portfolio of risky assets.

Your client has a two-asset portfolio with equal weighting and the following characteristics: Return Risk(σ) Asset...

Your client has a two-asset portfolio with equal weighting and the following characteristics: Return Risk(σ) Asset A 5% 20% Asset B 10% 30% If the correlation coefficient between assets A and B is 0.6, what is the standard deviation of the 2-assst portfolio?

. Explain the investing process. What is asset allocation? What criteria are used to determine asset...

. Explain the investing process. What is asset allocation? What criteria are used to determine asset allocation decisions? Explain each criteria and how the criteria will influence the asset allocation decisions. Once an asset allocation decision is made, how do we proceed to security selection? That is, how do we determine which securities to include in our portfolio

Asset allocation is critical investing concept can you explain please ?

1. Explain the investing process. What is asset allocation? What criteria are used to determine asset...

1. Explain the investing process. What is asset allocation? What criteria are used to determine asset allocation decisions? Explain each criteria and how the criteria will influence the asset allocation decisions. Once an asset allocation decision is made, how do we proceed to security selection? That is, how do we determine which securities to include in our portfolio 2. Identify and briefly explain two of the behavioral biases we discussed in class and provide examples of how those biases influence...

In a portfolio consisting of the risk free asset and/or a risky asset, what is the...

In a portfolio consisting of the risk free asset and/or a risky asset, what is the expected return and standard deviation if you borrow 25% of your net worth by selling short the risk free asset and invest the proceeds in the risky asset, given the following? Rm = .15 Rf = .05 σm = .2

A fund manager has a long-term asset allocation that includes an exposure of 20% of the...

A fund manager has a long-term asset allocation that includes an exposure of 20% of the portfolio value to international equities. The fund manager makes the decision to include the stock AAPPL in the portfolio. On average, evidence suggests that the long-term asset allocation decision will have a _________ contribution to the overall performance of the portfolio relative to the decision to hold AAPPL as part of the Australian equity exposure. Select one: a. Minimal b. Lower c. Higher d....

The risk-free asset has a return of 1.62%. The risky asset has a return of 8.82%...

The risk-free asset has a return of 1.62%. The risky asset has a return of 8.82% and has a variance of 8.82%. Karen has the following utility function: LaTeX: U=a\times\sqrt{r_{c\:}}-b\times\sigma_cU = a × r c − b × σ c, with a=1.3 and b=8.78. LaTeX: r_cr c and LaTeX: \sigma_cσ c denote the return and the risk of the combined portfolio. The optimal amount to be invested in the risky portfolio is 33.85% . (Note: this solution does not necessarily...

The return of a portfolio is normally distributed with a mean return of 8% and risk...

The return of a portfolio is normally distributed with a mean return of 8% and risk of 10%. What is the probability that this portfolio's return is between 18% and 27.6%?

what is an appropriate asset allocation for the investment portfolio of a 30 year old? what...

what is an appropriate asset allocation for the investment portfolio of a 30 year old? what is dollar cost averaging and what should the investor do to take advantage of it? As the investor gets old, should he/she make adjustments to the allocation? If so, please discuss how the allocation in each asset class should change and why.

Subjects