Nobody downloaded yet

Finance risk in a portfolio context - Admission/Application Essay Example

Comments (0) Cite this document
Summary
In the paper “Finance risk in a portfolio context” the author analyzes the term portfolio which can be defined as a collection of investments that are held by an individual or by a company. To correctly judge the risk in a certain area it is important to judge from a portfolio.
 …
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER96.2% of users find it useful
Finance risk in a portfolio context
Read TextPreview

Extract of sample "Finance risk in a portfolio context"

Download file to see previous pages for an investor to do his assignment carefully to determine the magnitude of risk associated with the investment so as to make a good decision to avoid huge losses. The main aim of an investor is to try and reduce the chances of risk as much as possible. It is a general rule that the when the chances of risk are high, the rate of return is usually high. However, there are some exceptions to this rule. Different projects have different levels of risk and hence different rates of return. Therefore, in order to correctly assess the risk one should consider portfolio (Chandra, 2011). Portfolio Theory The theory is also referred to as the modern portfolio theory and was developed and introduced by Harry Markowitz in the year 1952. Under this theory, it is assumed that the returns from an investment activity are spread over the period of time being analysed. The objective of this theory is to maximize the expected return of a portfolio for a certain level of portfolio risk. In other words, it attempts to minimize the level of risk associated with a certain level of expected return. They concept that guides this theory is that when calculating the risk level, an investment should not be considered alone. It is important for the investor to evaluate several investments varies in prices in comparison with other investments in the portfolio varies in prices (Brealey, Myers & Allen, 2011). When making an investment, one trade- off between a risk and a return and therefore the investor should always try to choose the investment that will give him the highest returns possible. The C.A.P.M In order to determine the theoretical rate of return that is appropriate for an investment, Capital Asset Pricing Model (CAPM) is used (Brealey, Myers & Allen, 2011). Assets that are evaluated...
In order to determine the theoretical rate of return that is appropriate for an investment, Capital Asset Pricing Model (CAPM) is used (Brealey, Myers & Allen, 2011). Assets that are evaluated using this model can be included in an existing diversified portfolio if their non- diversifiable risk is known. In doing the calculation, the sensitivity of the investment to systematic risk is taken into consideration. This risk is represented by the symbol β. The projected market return and the projected theoretical return of the risk free investment are also determined.  The formula for CAPM used to determine the expected rate of return is as follows; The measure of systematic risk used in CAPM is important since the investors can compare it with that of other investments in the market. They can therefore go ahead and select the best investment. In addition, they are able to improve their portfolio and reduce the chances of risk. Managers can also use the model to determine the required rate of returns for investment (Chandra, 2008).Long Term FinancingIn a business, there are those investments whose returns are expected for a long period of time usually over one year. These are usually investments in long term assets such as machinery and buildings. The money needed to finance these investments should be available for a long time (Brealey, Myers & Allen, 2011). The time required to pay back the finance should exceed one year. A company should have a good mix of long term financing (capital structure).  This will help reduce the cost of capital as well as the risk involved. The investor should have a good business plan so as to make a good investment portfolio that reduces risks. The company will get a long term debt depending on the collateral available. The manager should be able to select between the short term and the long term financing. To do this, they should consider the risk-return trade off. It is important to note that long time financing is less risky as compared to the short term financing. ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Finance risk in a portfolio context Admission/Application Essay”, n.d.)
Retrieved from https://studentshare.org/finance-accounting/1469987-finance-risk-in-a-portfolio-context
(Finance Risk in a Portfolio Context Admission/Application Essay)
https://studentshare.org/finance-accounting/1469987-finance-risk-in-a-portfolio-context.
“Finance Risk in a Portfolio Context Admission/Application Essay”, n.d. https://studentshare.org/finance-accounting/1469987-finance-risk-in-a-portfolio-context.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Finance risk in a portfolio context

Finance Markets and Risk

...? . What is meant by ‘systemic risk’ and ‘systemically important financial s’ (SIFIs)? Is separation of banking between retail commercial banking business and investment banking need of the hour?- An Analysis ( Word Count with Heading and references 2555) What is meant by ‘systemic risk’ and ‘systemically important financial institutions’ (SIFIs)? Systemic Risk Systemic risk is ushered by unforeseen incidents that amplify uncertainty unimaginably and damage the liquidity of the market at a rapid phase. Illiquidity results in “prices gaps” in respective markets and in the pricing of a particular asset. The related pressure later extends to the liquidity of funding of financial institutions around the world that are assisting those... ...
10 Pages(2500 words)Essay

Portfolio risk management

...………………………………………………………………………….xxxxxx …………………………………………………………………….xxxxxx …………………………………………………………………………xxxxx ………………………………………………………………………..xxxxx @2012 Abstract A well-maintained portfolio is vital to every investor aiming at maximizing wealth. As an investor, you need to know how to allocate assets that suit personal goals and strategies. Therefore, this report focuses on portfolio analysis, which is useful to the Investor in decision making. Table of Contents Introduction ……………………………………………………………4 Q 1.a ………………………………………………………………………4 Q 1.b……………………………………………………………………….7 Q 2…………………………………………………………………………11 Conclusion………………………………………………………………19 Portfolio Risk Management Introduction...
10 Pages(2500 words)Essay

In finance, risk is best judged in a portfolio context. Is this true Why

...? “In finance, risk is best judged in a portfolio context" Is this true? Why? Table of Contents Introduction 3 Risk and Return 3 Portfolio Theory 4 The CAPM (Capital Asset Prising Model) 5 Dividend Policy 5 Long Term Financing 6 Capital Structure (Irrelevance) 6 Capital Structure (and Market Perfection) 7 The weighted average cost of capital (W.A.C.C.)  7 Option (Financial) 7 Option (Real) 7 Risk in Portfolio Context 8 References 10 Introduction The investment market is inextricably linked to the securities market of the country; and the understanding of the stock markets...
6 Pages(1500 words)Essay

Risk and Portfolio Context

...?Running Head: Risk and Portfolio Context Risk and Portfolio Context [Institute’s Risk and Portfolio Context Introduction Finance is all about allocation of an individual’s assets in such a way that these assets generate return over them so that their value increases with time and inflation, and provides financial benefit to the investor. Investment, though necessary for a secure future, is a very risky business. It has the ability to help the investor in building a secure future if done with proper care and at the same time have the ability to ruin the investor present...
6 Pages(1500 words)Essay

In finance, risk is best judged in a portfolio context. Is this true Why

...? “In finance, risk is best judged in a portfolio context." Is this true? Why? Introduction Investment in national as well as globally is a very common strategy in today’s business world. In terms of finance, investment in global environment is called international diversification. The main objective of the report is to analyse the key driver of the international investment diversification. There are different activities relating with the international diversification like investment in various types of securities, bonds, and shares etc. in the capital as well as money market in different countries. The whole process is done by the...
5 Pages(1250 words)Essay

In finance, risk is best judged in a portfolio context. Is this true Why

...face the same risk in a given period. Assessing risk associated with a collection of assets instead of considering a single asset is the best approach to enable investors select more rewarding investments portfolio. Bibliography Brunnermeier, M 2001, Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding, Oxford University Press, Oxford. Pp.123 – 287 Cochrane, J 2009, Asset Pricing Theory, Princeton University Press, Princeton, NJ. Pp. 234 - 402. Connor, G, Goldberg, L and Robert, K 2010, Portfolio Risk Analysis. Princeton University Press, Princeton, NJ. Pp. 178 – 234. Constantinides, G, Harris, M & Stulz, R 2003,...
6 Pages(1500 words)Essay

The Important New Management Discipline of the 21st Century and Its Applications for TSE Limited Companies

...will be examined and recommendations will be put forward for implementation of effective and efficient ERM framework in companies. The research will seek out important information from both primary and secondary sources. For primary research a survey questionnaire (Badke) will be prepared to inquire from companies’ risk managers to comment and elaborate on risk issues facing their companies and ERM techniques they have implemented. Furthermore, secondary research from a collection of journals, articles, periodicals, books and credible internet sources will be carried out to form basis of background to the context of the research, literature review, research methodologies and information...
1 Pages(250 words)Article

Job Serach E-mail

1 Pages(250 words)Assignment

In finance, risk is best judged in a portfolio context. Is this true Why

...In finance, risk is best judged in a portfolio context." Is this true? Why? "In finance, riskis best judged in a portfolio context." Is this true? Why? Risk is uncertainty that investors face when making their investment decisions and they face a situation where not every risk can be diversified or mitigated. In other words, it can be said that risk is the uncertainty of returns on the amount that has been invested in the stocks. Therefore, they have to accept a certain level of risk in their investment portfolio where it is a set of...
6 Pages(1500 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Admission/Application Essay on topic Finance risk in a portfolio context for FREE!

Contact Us