PORTFOLIO MANAGEMENT
Nadine Joseph
Professor Gary Bliss
FIN 550 Corporate Investment Analysis
February 2, 2014
Table of Content
Introduction
Analyze the relationship between risk and rate of return, and suggest how you would
formulate a portfolio that will minimize risk and maximize rate of return.
Formulate an argument for investment diversification in an investor portfolio.
Address how stocks, bonds, real estate, metals, and global funds may be used in a
diversified portfolio. Provide evidence in support of your argument.
Evaluate the concept of the efficient frontier and how you will use it to determine an asset
portfolio for a specified investor.
Consider the economic outlook for the next year in order to recommend the ideal portfolio
to maximize the rate of return for the short term and long term. Explain the key differences
between the short and long term.
Conclusion
Introduction
Portfolio management is all about being able to analyze risk and return, and making
investment decisions to match financial goals based on acceptable risk and expected
return. The objective is to maximize return and minimize risk. Investors are looking at
things such as debt and equity, domestic and international markets, and growth and safety.
In doing this the investor must try to find a median between risk and return in order to
achieve their financial goals.
Analyze the relationship between risk and rate of return, and suggest how you would
formulate a portfolio that will minimize risk and maximize rate of return.
Risk and return are directly related. Generally, higher risk normally means higher returns.
The problem with this is that most investors are not willing to accept high amounts of risk
since returns are not guaranteed. So investors try to find a median where they have an
acceptable amount of risk and an acceptable amount of return. Risk and reward go
hand-in-hand in the financial markets. So anything that reduces your risk will also reduce
your return (Kristof, 2014).
Systematic or un-diversifiable, also known as market risk is associated with every
company. It is not specific to a company or industry, and cannot be eliminated, or reduced,
through diversification. It is caused by factors such as inflation or interest rate.
Unsystematic risk Diversifiable is specific to a company, industry, market, economy or
country and can be reduced through diversification. Factors include business and financial
risk.
In order to achieve diversification, you need to invest in asset in different industries and
companies that are not correlated and are not affected by the market in the same way.
