161x Filetype PPTX File size 0.23 MB Source: www.csun.edu
Vicentiu Covrig FIN638 How Finance is organized Corporate finance Investments International Finance Financial Derivatives 2 Vicentiu Covrig FIN638 Risk and Return The investment process consists of two broad tasks: • security and market analysis • portfolio management 3 Vicentiu Covrig FIN638 Risk and Return Investors are concerned with both expected return risk As an investor you want to maximize the returns for a given level of risk. The relationship between the returns for assets in the portfolio is important. 4 Vicentiu Covrig FIN638 Risk Aversion Portfolio theory assumes that investors are averse to risk Given a choice between two assets with equal expected rates of return, risk averse investors will select the asset with the lower level of risk It also means that a riskier investment has to offer a higher expected return or else nobody will buy it 5 Vicentiu Covrig FIN638 Top Down Asset Allocation 1. Capital Allocation decision: the choice of the proportion of the overall portfolio to place in risk-free assets versus risky assets. 2. Asset Allocation decision: the distribution of risky investments across broad asset classes such as bonds, small stocks, large stocks, real estate etc. 3. Security Selection decision: the choice of which particular securities to hold within each asset class. 6
no reviews yet
Please Login to review.