Investment Policy  Risk Aversion Capital Allocation  Optimal Risky Portfolio

Project description
I need the following questions answered in the attached document to be addressed in 3 pages. May you kindly provide it in 10 hours time. It’s actually due in 7 hours! I will submit this as late assignment but please provide it in 10 hours max!

From (Chapters 6, 7, and 28) from the following book:

Investments
by Zvi Bodie, Alex Kane, and Alan J. Marcus
9th edition published by McGraw-Hill
This Assignment assesses CLO1:
CLO 1: Assess asset allocation decision and security selection strategies.

Chapter 28:
1.    Compare and contrast the investment objectives and constraints of a bank, an insurance company and defined benefit pension fund?                    (Mark-1)
2.    Young people with little wealth should not invest money in risky assets such as the stock market because they can’t afford to lose what little money they have. Do you agree or disagree with this statement? Why?                        (Mark-1)
3.    What is included in an investment policy statement and why is it important?    (Mark-1)

Chapter 6:
4.    Use the questionnaire in the check your risk tolerance (Page 194-195) to determine your risk tolerance. Use this information to help write a policy statement for you.    (Mark-1)
5.    Consider a risky portfolio. The end-of year cash flow derived from the portfolio will be either AED50, 000/- with probability 0.3 or AED 100,000 with probability 0.7. The alternative risk-free investment in T-bills pays 4% per year.
a.    If you require a risk premium of 7%, how much will you be willing to pay for the portfolio?                                    ½ Mark
b.    Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio?            ½ Mark
c.    Now suppose that you require a risk premium of 12%. What is the price that you will be willing to pay?                                ½ Mark
d.    Comparing your answers to (a) and (c), what do you conclude about the relationship between the required risk premium on a portfolio and the price at which the portfolio will sell?                                ½ Mark
6.    Consider the following info about a risky portfolio that you manage, and a risk-free asset E(rp) = 11%, ?p = 15%, rf=5%.
a.    Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 8%. What proportion (i.e., y) should she invest in the risky portfolio, P, and what proportion (i.e., 1-y) in the risk-free asset?                    ½ Mark
b.    What will be the standard deviation of the rate of return on her portfolio? ½ Mark
c.    Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 12%. Which client is more risk averse?                                    ½ Mark
7.    Investment alternatives:
Investment        E(r)        ?
A            0.18        0.45
B            0.225        0.75
C            0.31        0.24
D            0.36        0.31
If the utility function of your client is U = E(r) – ½ A?2 with A=4,
a.    Which investment you will select for the client if he is risk averse with A=4 1 Mark
b.    Which investment you will select for the client if he is risk neutral        1 Mark

Chapter 7
8.    The following data apply to following 6 problems. A pension fund manager is considering 3 mutual funds. The first is a stock fund, the second is a long-term government and corporate fund, and the third is a T-bill money market fund that yields a rate of 8%. The probability distribution of the risk funds is a s follows:
Investment        E(r)        ?
Stock fund (S)         20%        30%
Bond fund (B)        12%        15%

The correlation between fund return is 0.1
a.    What are the investment proportions in the minimum variance portfolio of the two risky funds, and what is the E(rp) and ?p?                    2 Marks
b.    What is the reward to volatility ratio of the best feasible CAL?        ½ Mark
c.    You require that your portfolio yield an E(r) of 14% and that it be efficient, on the best feasible CAL. What is (i) ?p and what is the proportion invested in (ii) T-bill fund and (iii) each of the two risky funds                        1 ½ Marks
d.    If you were to use only the two risky funds, and still require an E(r) of 14%, what would be the investment proportion of your portfolio? Compare its ? to that of the optimized portfolio in 8(c). What do you conclude?

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