Posted: September 17th, 2017
Suppose you are working in an Investment Bank, a client with limited investment knowledge requests you to create a portfolio with a minimum required annual return of 15%. The client claims he is a risk-averse investor and his initial investment is £500,000. Please propose an investment plan for your client based on his expectation and the following requirements.
This project requires you to use 4 years daily adjusted-close prices (from 01 Jan 2011 to 31st Dec 2014) of real listed company stocks. These companies could be any companies listed on the stock exchanges around the world. The data can be obtained from the website of Yahoo Finance. Please use MS Excel to perform the calculations.
The risk-free asset is assumed with an annual rate of return of 5%.
Section 1: Choose five different companies’ stocks that potentially can be used to construct a portfolio and make sure that the annual rate of return for some companies is less than 15% and larger than 15% for other companies. You are required to:
Section 2: Based on your analysis of the five companies’ stocks in Section 1, construct Portfolio A that comprises of two companies’ stocks from the five. This portfolio should meet the client’s 15% annual return requirement and take into account that your client is risk-averse investor. You are required to:
Section 3: construct Portfolio B by combining one risk-free asset with Portfolio A (consisting of two company stocks (risky assets)) and make sure that the annual rate of return for Portfolio B is 25%.
Remember, your client is not an expert in Finance theory, therefore, please interpret and comment on your technical analysis results so he would be able to understand. You need to provide a report with 2000 words (appendix and reference list are not included).
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