Q4 - Q4 (a) By ignoring the volatility, correlation and...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Q4 (a) By ignoring the volatility, correlation and only focus on the achieving an expected re- turns of 9% to 11%, we recommend Mr. David Tan to have a “Balance” portfolio. The portfolio comprises of investing in different assets class with equal weighted alloca- tion. By allocating of the weighted assets equally, it will achieve a well balanced portfolio. The portfolio include of:- 25% of (1) Domestic Equity 25% of (2) International Equity 25% of (5) Alternative Investment 25% of (6) Real Estate The overall portfolio will achieve the expected return of 10.5% and the asset-class weights sum-up to 100%, as shown in Table 4.1 . Assets Expected Return Weight Selectio n Selected Portfoli o Weight (%) Selected Portfolio Weighted Return (1) Domestic Equity 8% 25% 1 25% 2.00% (2) International Equity 12% 25% 1 25% 3.00% (3) Domestic Fixed Income 6% 25% 0 0% 0.00% (4) International Fixed Income 5% 25% 0 0% 0.00% (5) Alternative Investment 15% 25% 1 25% 3.75% (6) Real Estate 7% 25% 1 25% 1.75% Total 4 100% 10.50% Formula:- Portfolio Expected Return = W 1 *E(R 1 ) + W 2 *E(R 2 ) +… W n *E(R n ) **Selected (Yes) = 1 , Not Selected (No) = 0 Table 4. 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Q4 (b) The portfolio needs to take in the constraints of volatility and correlation so as to re- calibrate the portfolio and bring down the overall portfolio risk. Correlation Among Asset Class Assets Expecte d Return Volatility 1 2 3 4 5 6 (1) Domestic Equity 8% 15.80% 1 (2) International Equity 12% 21.70% .54 1 (3) Domestic Fixed Income 6% 2.25% -.11 -.67 1 (4) International Fixed Income 5% 5.60%
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

Q4 - Q4 (a) By ignoring the volatility, correlation and...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online