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Finance & Accounting
Pages 8 (2008 words)
Ans 1a Every investor in the market wants maximum return on its investment with minimum risk as every return on assets associated with a risk in the stock market. This portfolio can be said to be sustainable and effective in the long run. The income on the securities will either increase or decrease depending with the risk associated with it.
With the combination of these securities in the portfolio investors can minimize their risk without sacrificing their expected return. Ans 1b In table 1, we can see correlation coefficients of five different funds, if we want to invest in any of the two funds in the portfolio with minimum risk. For example Aviva Property and HSBC Asian Growth with correlation coefficient 0.10 can minimize the risk without sacrificing any of their expected return. In such a combination of these funds the risk will be diversified effectively without decreasing the level of expected return whatsoever. Ans 1c We have a portfolio of two funds, Aviva property and HSBC Asian Growth. We have also combined other funds and analyzed their risk exposure and found that their portfolio has minimum levels of risk. This investor is investing 50% of the cash in both the funds minimizing its risk without change in the expected return. Aviva property has risk of 2.3% with negative return while HSBC shows 6.5% risk with a good level of return. If investors will invests separately in these funds, the risk will be more but in other combinations the risk will also be greater. ...
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