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FINC3017 Report 1

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You are required to address the following points in your report:  What are the expected returns, standard deviation and utility the investor expects to derive from these portfolios? What are the weights in the optimal portfolios? Highlight why you think certain industries received such a weight in the portfolios. Please discuss each of the three investment periods separately.  Compare the actual investment performance of the three optimal portfolios to ASX/S&P300 index and an equal-weighted portfolio for each of the three investment periods. Discuss the differences that exist between the three portfolios over the three periods. Provide details as to why you think the differences exist.  Compare each of the three optimal portfolios to portfolios where you have no expectation about which industry will outperform. In this case you need to assume for each of the three-year investment periods that the expected return are as in Table 3. Discuss the differences between these portfolio in each investment period and what is causing the difference. Compare the utility that the investor would derive if they invested in only one industry. Which industry provides the highest utility? What are the implications for the construction of optimal portfolios? Is it a sensible approach for the investor to put all their wealth into one industry?  Provide a one paragraph conclusion detailing what the results imply for successful portfolio construction.  Where relevant, your report should discuss economic reasons related to the stock market performance of each industry.

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21 Pages Essays / Projects 1-2 Years old
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FINC3017 Report 1
Topics this document covers:
Financial risk modeling Finance Money Economy Financial ratios Portfolio optimization Diversification Risk aversion Sharpe ratio Financial risk Standard deviation
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Topics this document covers:
Financial risk modeling Finance Money Economy Financial ratios Portfolio optimization Diversification Risk aversion Sharpe ratio Financial risk Standard deviation
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76% with a utility of 0.0058 and the standard deviation of 2.28%. From the weightings in the table below, it is clearly shown that a large weight of the portfolio has been invested into the financial industry which is reasonable as it yields a relatively moderate expected return and has a low covariance with respect to the other industries (See Appendix 1). Having a low covariance with other industries is favourable as it provides a better diversification thus minimising portfolio risk. The materials industry yielded the highest expected return at 1% as a result of the commodity price boom however only a moderate weight of the portfolio was invested into this industry due to the higher covariance. Optimal Portfolio Expected Returns Weight Combined Portfolio ENERGY 0.85% 9.14% x(Rp) 1.0663 MATERIALS 1.00% 8.40% 1-x (Rf) -0.0663 INDUSTRIALS 0.77% 0.95% SUM 1 CONS ...
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