Your group has been approached by a client wishing to invest AUD$1,000,000 of their own capital in a portfolio of stocks listed on the ASX and a risk free asset. The client is interested in investing for the long –term (ie more than 10 years) and is risk averse.
FLT/ CBA/ WOW
1. The group is required to select three stocks that are a component of the S&P/ ASX 100 Index (ASX Code XTO) to form part of an investment portfolio. Stocks should be selected from different industries.
2. The group must then calculate the expected return and standard deviation using historical data for their chosen stocks using historical data. The choice of timeframe and data frequency must be justified but the period must end in June 2015.
3. The group must then construct at least 30 different portfolios comprising different weights of the three stocks chosen by the group. These portfolios should be constructed to ensure they are representative of the investment possibilities of combinations of the chosen stocks. The results should be presented in a graph. The portfolio with the lowest standard deviation of your constructed portfolios must be identified.
4. The group must then select a suitable proxy risk-free asset and determine the expected return and standard deviation of that asset. The choice of asset must be suitably justified.
5. The group must determine the expected return and standard deviation for a portfolio comprising 250% invested in the lowest risk identified is step 3 above and -150% invested in the risk free asset identified is step 4 above.
6. Will this new portfolio provide the best outcome for the client given the level of risk they are taking? Discuss. (Please note a substantial portion of the marks are devoted to this discussion)
Formatting and Presentation:
1. Make sure you use proper referencing in your assignment. All assignments must include a list of references in academic form using the Business School citation style. You will be penalised if you use inappropriate referencing.
2. Pay particular attention to presentation. A significant component of your mark will be based on presentation. Avoid overdoing formatting, and ensure that the assignment is very clear, logical and professional. Pay attention to grammar. Clear and logical presentation is a major challenge in assignment preparation. Preparing a concise assignment is another major challenge. Every part of the assignment should somehow add to the end result – determining an appropriate investment – otherwise it is superfluous and distracting.
3. A sample of the data used in the assignment must be included in the appendix. Failure to include this will result in a penalty being applied.