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Risk Tolerance & need to diversify - Research Paper Example
Finance & Accounting
Pages 3 (753 words)
Risk Tolerance and need to diversify Table of Contents Table of Contents 2 Evaluating the current portfolio 3 Impact on future Investment Decisions 4 References 7 Evaluating the current portfolio The current portfolio is composed of Small Company Stocks, Large company Stocks, Long term corporate Bonds, Long term government Bonds, and US treasury bills…
Large Company stocks, also referred to as blue-chip stocks or large-cap stocks, refer to the stocks of large publicly traded companies (Leach and Melicher, 2011, p.249). Long term corporate bonds in most cases refer to debentures which offer a higher yield compared to other investments but investors of such bonds are prone to interest risk and credit risk. Long term government bond refers to those bonds which mature in more than 10years. US Treasury bill is a transferable debt contract issued by the US Government that ensures trust and fulfillment of claim of receivable return at the end of the period. Such investment is made for a period of one year or less than one year, and is exempt from local and state taxes (Boston Institute of Finance, 2005, p.105). If my decision is to invest in the current portfolio of mix of stock, bonds and treasury bills in equal proportions, despite of the divisions between fixed earnings and volatility of earnings of the securities, the entire portfolio would give an average (avg.) expected return of 14.78%, with risk of 8.88% associated with it, as per time horizon and risk tolerance. ...
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