FIN 402 Week 4

Individual Risk and Return Tradeoff Memo

Resources: Constructing and Managing a Portfolio Simulation, Electronic Reserve Readings, University Library

Complete the Constructing and Managing a Portfolio simulation on the student website.

Conduct research concerning the risk and return tradeoff, and the relationship between investment strategy and performance.

Prepare a 1,050- to 1,400-word memo to Rainier Ekstrom, Casa Bonitas chief executive officer, in which you analyze risk and return tradeoffs associated with the organizations investment portfolio. Address the following:

Decisions you made in the simulation

A discussion of how the Sharpe ratio helps make investment decisions

Recommendations for changes in the organizations investment strategy to improve its performance

Learning Team Risk and Return Analysis Paper

Complete the following activities:

Conduct a risk assessment and return analysis on the investment vehicles in your portfolio.

Select the weights of each vehicle in your portfolio; for example, the percentage of the portfolio each vehicle makes up.

Locate the beta for each security. Use .3 beta for bonds and 0 for money market instruments.

Calculate the weighted average risk and return of your portfolio. Then, change the weights of the vehicles to emphasize high-return performers. Perform another risk assessment, using these weightings. Change the weights of the vehicles to emphasize low-risk performers. Perform another risk assessment using these weightings.

Prepare a 1,750- to 2,450-word paper in which you present your risk assessment and return analysis, and summarize your findings. Include an explanation of the relationship between risk tolerance levels and macroeconomic variables.

Format your paper consistent with APA guidelines.

Discussion Questions

What are characteristics of an efficient portfolio? How are a portfolios return and standard deviation determined? How must assets be evaluated to achieve a minimum variance portfolio? Explain your answer.

What are examples of active and passive portfolio management techniques? Why would a portfolio manager pursue active instead of passive techniques? Is it ever preferable to use a passive technique? Why or why not?

Does international diversification enhance risk reduction? Why or why not? What measures may be taken to reduce risks of international portfolio investing?