The Asset Allocation Decision & An Introduction to Portfolio Management (The%2BAsset%2BAllocation%2BDecision.ppt)

The Asset Allocation DecisionDescribe the steps in the portfolio management process and explain the reasons for a policy statement.Explain why investment objectives should be expressed in terms of both risk and return and list the factors that may affect an investor’s risk tolerance.Describe the return objectives of capital preservation, capital appreciation, current income, and total return and describe the investment constraints of liquidity, time horizon, tax concerns, legal and regulatory factors, and unique needs and preferences.Describe the importance of asset allocation, in terms of the percentage of a portfolio’s return that can be explained by the target asset allocation and list reasons for the differences in the average asset allocation among citizens of different countries.An Introduction to Portfolio ManagementDefine risk aversion and discuss evidence that suggests that individuals are generally risk averse.List the basic assumptions behind the Markowitz Portfolio Theory.Compute the expected return for an individual investment and for a portfolio.Compute the variance and standard deviation for an individual investment.Compute the covariance of rates of return, and show how it is related to the correlation coefficient.List the components of the portfolio standard deviation formula, and explain which component is most important to consider when adding an investment to a portfolio.Describe the efficient frontier and explain the implications for incremental returns as an investor assumes more risk.Define optimal portfolio and show how each investor may have a different optimal portfolio.

Natalia Elizabeth Rendon Chasi

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