Description
Deliverable Length: 1,500–1,800 words
Part 1 Tasks
In general terms, discuss how the following should be taken into consideration when constructing an investment portfolio:
- Age
- Income
- Debt level and assets
- Marital status
- Parental status
- Risk tolerance
- Time horizon
- General economic conditions
Part 2 Tasks
Task 1
Discuss the efficient market hypotheses, and answer the following question:
- Does this hypothesis support active trading or buying a passive stock index fund?
Task 2
- Discuss several pieces of legislation that were enacted to protect against unethical investing practices.
Task 3
To illustrate your knowledge of portfolio construction, design a portfolio based on the following scenario:
- Robert and Susan Jenkins have inherited $200,000. They are aggressive investors with a joint annual income of $100,000, no debt, and an additional $500,000 in assets other than the $200,000 inheritance.
Design 2 separate $200,000 portfolios based on the following scenarios:
- The couple has 3 children between the ages of 9 and 17 years old, and they will use this money to pay for their college education.
- The couple will use the money to help fund retirement in 35 years.
When designing your portfolios, be sure to keep the following in mind:
- Each portfolio should contain at least 3 common stocks, 1 American Depositary Receipt (ADR) that you researched, and 3 bonds.
- Leaving a portion of the portfolio in cash is an option if you feel that is it appropriate.
- Charts and graphs should be used where appropriate.
- Portfolio models should be based on the Jenkins’ demographic profile and time horizon.
Be sure to include the following in your discussion:
- Reasons for your investment choices
- Stock and bond investment risk and return factors
- The security market line
- Beta and standard deviation
- Bond duration and interest rates
Part 3 Tasks
Generate a brief discussion of the following concepts:
- Dividend discount model
- Capital asset pricing model (CAPM)
Explanation & Answer
Hi,Find attached the completed work.Feel free to ask for any clarification or editing if need be.Looking forward to working with you in the future.Thank you.
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Part 1
A group of financial assets like bonds, cash equivalents, and stocks is known as a portfolio
(Ross, 2007). Some of the factors that are to be taken into consideration when constructing a
portfolio include income, time horizon, general economic conditions, age, debt level and assets,
marital status, risk tolerance and parental status (Ross, 2007). The circumstances that an investor
is in dictate the types of investments he or she includes in his portfolio. Investing in company
stocks require investors that have a higher risk tolerance because dividends are paid only when the
company makes a profit. High-risk tolerance will make investors invest in options, securities, and
real estate. Investors that are more conservative prefer going for stocks of large companies because
there is a guarantee that these cannot fail to make a profit. Another factor that has considerable
influence on the investor’s portfolio construction is the investor’s time horizon (Ross, 2007). Older
investors prefer conservative assets to invest in because of the short time horizon they have as
investors. They would prefer assets that have a shorter maturity to a longer one as opposed to their
younger counterparts. Others may want high risks stocks because they are associated with high
returns, as they near their age of retirement. The same is also true for individuals with a higher risk
tolerance. The debt level and assets of an investor have a significant impact on the type of assets
they would prefer in their portfolio. Those with a high debt level would prefer a portfolio that
matures fast compared to those with a lower debt level (Ross, 2007). The general prevailing
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economic conditions are also a factor to consider when constructing an investment portfolio
because of the effects changes in interest rates and inflation may have on the future value of an
investment. Lastly, the marital and parental status should be considered in that if the investor has
children, the portfolio should have shorter maturity investments to be able to cater for their school
fees. Married people should p...
