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Unformatted text preview: 1 Investment Analysis: Prof. Peng 1 Ch5. Risk and Return (part 2) Asset Allocation Capital Allocation Line Utility function and risk aversion Investment Analysis: Prof. Peng 2 Asset Allocation How to allocate your fund among the following asset classes? Investment Funds Stock Bond T-Bills Risky Assets Riskfree Asset 2 Investment Analysis: Prof. Peng 3 Asset Allocation Risky and riskfree assets Percentage to invest in risky asset Risky asset: a stock or a stock portfolio Percentage in riskfree asset Riskfree asset: T-bill as proxy Issues Examine risk/return tradeoff Demonstrate how different degrees of risk aversion will affect allocations between risky and risk free assets Investment Analysis: Prof. Peng 4 Asset Allocation Exp. ret and risk of assets Exp. ret and risk of combined portfolio Example: w = 0.75 w r w r E f f p p 1 % % 7 Riskfree % 22 % 15 ] [ Risky Weight Dev Std Mean Assets w w w r wE r w r E p c p...
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This note was uploaded on 08/26/2011 for the course ECO 220 taught by Professor Huang during the Spring '08 term at CUNY Hunter.
- Spring '08