Question

1. Different investors will have very different investment objectives and strategies. For example, some will be very active, buying and selling frequently; others will be relatively inactive, buying and holding for long periods of time. Some will be willing to bear substantial risk in seeking out returns; for others, safety is a primary concern. The investment policy statement, or IPS, is typically divided into two sections: objectives and constraints. Suppose you have RM 50,000 cash now, you want to make investment in Malaysian stock markets, but you need pay the Monash tuition in July 2021 based on this investment.   Now please discuss your own investment policy statement: (1) What is your own investment objectives in terms of risk and returns; (2) Discuss at least three of the most common and important constraints you might have to consider for this investment

Answer 1

(1) What is your own investment objectives in terms of risk and returns?

Ans:

Risk and return are goes on same direction. In other words risk and return is positively correlated. If some one needs higher returns he need to take high risk. Stock market in one such investment where taking higher risk rewards the higher return. However taking higher risk does not guarantee the higher return. High risk means inconsistency in return we may earn we may not earn.

Though I am willing to invest the money in stock market, the return out of that money I need to use for the payment of tuition fees. My risk class is Aggresive since I am taking my chance in the market for just one month of time horizne.Therefore I catorize my self as risk seeker for better return.

(2) Discuss at least three of the most common and important constraints you might have to consider for this investment.

Ans: Three Imporatnt contrainst are

1. Return

2. Liquidity

3. Time

1. Return: Return on investment becomes one the important constrain in the desire return on the investment may or may not happen in stock market.

2. Liquity: Liquidity of investment become one the most important constraints because, investors need the money back with return to full fill the investment objective.

3. Time: Time is more significant in stock market. Longer the term in stock market better will be the return. However in this looking return in just one looks to be very difficult.