FINC 340: INVESTMENTSUNIT #7 WEEKLY WRITTEN ASSIGNMENTDIRECTIONS
FINC 340: INVESTMENTSUNIT #7 WEEKLY WRITTEN ASSIGNMENTDIRECTIONS: Here is the Unit #7 Weekly Writing Assignment question sheet for theUnit #7 Homework Assignment.Please submit your Unit #7 Writing Assignment in MS Word format with the following filename: LastNameFirstInitial_Unit 07_Writing Assignment.docx. For example, if you nameis John Smith, the file name should be SmithJ_Unit07_Writing Assignment.docx.If you have any questions or comments, please do not hesitate to contact me.NAME: _____________________________________Jill Jones inheirited a large lump sum of money. This lump sum will representthe total of her investable assets and will need to be invested in a way that willsupport her spending needs in retirement. Jill has brought the personal Fnancedocuments you requested to the meeting, completed a risk questionnaire andspoke with you about her retirement objetives.In preparation for the next meeting you use the information you havegathered to assess Jill’s goals in light of her risk tolerance, risk perception, riskcapacity, and other personal and Fnancial circumstances. Balanceing all of thesefactors, you have decied that a diversiFed portfolio with moderate risk is thereasonable approach to sustaining Jill’s spedning needs in retirement. You knowthat you will need to engage in extensive explanations and education to ensurethat Jill will remain comfortable with the recommended portfolio over the long run.1. Construct an optimal client portfolio by the allocation of wealth amongstrisky assets and risk-free securitiies. Diversify the portfolio among adozen asset classes instead of thousands of individual securities.A. Refer to Table 1.0 to see nine Assets Classes, Annual Returns,Standard Deviations and Sharpe RatiosB. Select four Asset Classes to include in the client’s portfolio.C. Determine the what percentage the Asset Class will represent in theclient’s portfolio.1
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D. Construct a weighted average for the investor’s portfolio consisting ofthe four Classes of Assets, their weights in the portfolio , and annualreturns earned.E. Calculatee the expected weighted average return on the investor’sportfolio (see Table 2.0 for an example). Include the StandardDeviations and Sharpe Ratios.2. Is the investor’s portfolio less risky than the benchmark(s)? (Please seeTable 3.0 for the names of the Benchmarks for the asset classes.)3. Is the asset allocation strategy consistent with the client’s risk tolerance?4. What would you say to Jill Jones to recommend the investor’s portfolo?Table 1.0 Examples of Annual Returns, Std Deviations, and Sharpe RatiosReturns & Risk1977-2011AnnReturnsStandardDeviation(Risk)*SharpeRatio**Tbills2.8%2.1%-Bonds5.8%2.9%1.03US Lg5.7%20.4%0.14US Sm6.2%20.6%0.17REITs9.2%22.7%0.28Intl Lg3.4%23.1%0.02Intl Sm6.0%28.1%0.11EM7.1%38.5%0.11Portfolio6.6%15.5%0.24*Higher standard deviation indicates higher volatility of returns.** The Sharpe Ratio measure return and risk eFciency. A higher numberindicates better risk adjusted performance.2
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