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FINC3017 Essay

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The Benefits of Diversification Sheree has A=4, the highest utility appears when she invests the Utilities industry which U is 0.1361% with expected return 0.38% and standard deviation 3.49%. Levi has A=2, the highest utility appears when he invests all the money into consumer discretionary (COND) industry, which gives him U=0.2611% with expected return 0.46% and standard deviation 4.46%. it is worth mentioning that even if the expected monthly return in utility industry is the lowest among all 10 industries, but it has the lowest variance among ten industries. Sheree has high risk aversion parameter (A=4), the lowest risk investment gives her the highest utility.

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FINC3017 Essay
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Finance Money Financial risk modeling Economy Utility Financial risk Actuarial science Portfolio optimization Diversification Risk neutral Capital asset pricing model Risk aversion Levi Sheree
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Topics this document covers:
Finance Money Financial risk modeling Economy Utility Financial risk Actuarial science Portfolio optimization Diversification Risk neutral Capital asset pricing model Risk aversion Levi Sheree
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1361% with expected return 0.38% and standard deviation 3.49%. Levi has A=2, the highest utility appears when he invests all the money into consumer discretionary (COND) industry, which gives him U=0.2611% with expected return 0.46% and standard deviation 4.46%. it is worth mentioning that even if the expected monthly return in utility industry is the lowest among all 10 industries, but it has the lowest variance among ten industries. Sheree has high risk aversion parameter (A=4), the lowest risk investment gives her the highest utility. Question 2 As calculated by Excel, consumer discretionary industry gives the highest utility to Levi, while materials industries give Levi the lowest utility among all 10 industries. To calculate the optimal portfolio for both Levi and Sheree, sample covariance matrix and portfolio variance need to be computed in the Excel...
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