6._Portfolio_Management

6._Portfolio_Management - Portfolio Management Click to...

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Click to edit Master subtitle style 5/30/11 Portfolio Management
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5/30/11 Investment Management or portfolio Management activity divided in seven broad phase. 1. Specification of investment objectives and constraints 2. Choice of Asset mix 3. Formulation of portfolio strategy
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5/30/11 Specification of investment objectives and constraints Investment Goals : Income : Regular Interest / Dividend Payment Growth : Capital Appreciation Stability : Protect the principal amount
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5/30/11 Investment Objectives : 1. Return requirement 2. Risk Tolerance Or 1. Maximize the expected rate of return , subject to the risk exposure being held within a risk tolerance
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5/30/11 Risk Tolerance capacity depends on 1. Financial situation of the Investor 2. Temperament of the investor Financial Situation can be assess by : 1. What is the Position of your wealth 2. What are the Major expenses can be anticipated in near future 3. What is Your earning capacity 4. How much money you can lose
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5/30/11 Temperament of the investor : Objective study of the investor temperament towards loss. Risk tolerance level is set by either by your financial situation or financial temperament , whichever is lower. Based on this customer risk tolerance can be define as low, medium or high. Once risk tolerance of the customer is identified, it will provide valuable guide
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5/30/11 Constraints Liquidity Investment Horizon Taxes Regulations Unique Circumstances
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5/30/11 Selection of Asset Mix Based on objective and constraints, you have to specify the asset allocation into the following asset in in different proportion. 1. Cash 2. Bonds 3. Stocks 4. Real Estate 5. Precious metal
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5/30/11 First investment decision of individual is concerned with education to build human capital. During early working year need to purchase life and disability insurance to hedge against loss of income on account of death or disability. Fist major economic assets one individual plan is to have own house. Before that , he should have sufficient liquid cash in term of bank deposits or money market instrument .
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5/30/11 Conventional Wisdom on Investors with greater tolerance for risk should tilt the portfolio in favor of stock where as investor with lower tolerance for risk should tilt the portfolio in favor of bonds. Investor with long investment horizon should tilt his portfolio in favor of stock where as investor with shorter investment horizon should tilt his portfolio in favor of Bonds because the expected return from
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5/30/11 Appropriate % allocation of fund in stock influenced by 2 factors i.e. risk tolerance and investment horizon.
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This note was uploaded on 05/30/2011 for the course ECON 101 taught by Professor Ke during the Spring '11 term at Lethbridge College.

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6._Portfolio_Management - Portfolio Management Click to...

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