Scribd
Upload
23 views11 pages

GT Port

Uploaded by

Getacher
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
23 views11 pages

GT Port

Uploaded by

Getacher
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 11

Debre Birhan university

College of Business and Economics


Department of Management
Program of MBA

Title :Portfolio construction


Name : Girma Tsegaye
ID: PGBEE/14/06
Presentation day: 25-jan-2014
Portfolio construction

Introduction
• The investment profile will define the type of
investor you are, taking into account your age,
income, consumption habit, environmental factor,
and investment goals. Most importantly, how
much risk you feel comfortable taking or can
afford to take.
Identification of HNI risk profile
• Based on the risk profile of a hypothetical investor
that was classified as risk neutral with zero risk
investment. The current annual take-home income is
$200,000.00 with age of 37.
Cont..

Capital allocation:
•Since the hypothetical investor is a zero risk with short time
horizon i.e. less than one year the following option taken into
consideration.
•Out of total investment 70% on government security i..e.
0.7*200,000.00=$140,000.00 , and 30% total investment on
money market i.e. 0.3*200,000.00=$60,000.00

30%

government
security
70% money
market
Cont...
• Out of government security (70%) which includes 60% for gold
bond and 40% on capital investment bond.
• Gold bond = 0.6 *140,000 = $84,000
• Capital investment bond = 0.4 *140,000= 56,000
Total = $140,000
Government security (70%)
Gold bond
40%
Capital in-
vestment
60% bond

This is due to individual investor is a risk neutral and has a zero


risk appetite and in need of return in relatively short time horizon.
The principle of don’t put all eggs in one basket is also applicable.
Cont…

• Out of money market instrument (30%),which includes 70%


for treasury bill and 30% on certificate of deposit.
• Treasury bill = 0.7 * $60,000 = $42,000
• Certificate of deposit = 0.3 *$60,000 = $18,000
Total = $60,000
Money market insturment (30%)

30%
Treasury bill
Certificate of deposit

70%
Cont...
• Asset allocation:
• Out of the total investment need (80%); 70% for government securities and 30%
for money market instrument.
• Government security=70%*0.80=0.56*200,000=112,000.00
• Money market=30%*0.80=0.24*200,000=48000.00

• Out of the total personal need (20%); the investor putting 30% with provident
fund, 50% with life insurance and 20% with fixed deposit.
• Provident fund=30%*0.2=0.06*200,000.00=12000.00
• Life insurance =50%*0.2=0.1*200,000.00=20000.00
• Fixed deposit =20%*0.2=0.04*200,000.00=8000.00
Asset allocation
0.04

0.1 Government security


Money market
0.06 Provident fund
Life insurance
Fixed deposit
0.56
0.24
Analysis of constraints
Liquidity versus Time horizon
• The investor prefers to invested in high quality short
term security that are widely traded and converted
in to cash with in a short period of time.
Tax consideration:-
• The investor wants to Invest in government and
money market instruments that can avoid taxation.
Safety of the principal:-
• The investor need the safety of the principal .This is
because the investor should be at least guaranteed
by principal at the time of (maturity) bankruptcy.
Determination of objectives

• The investors objective was particularly the


stability (safety) of the principal and gaining of
current income. This is due to the investor
should include risk free securities.
Selection of portfolio
• The investor’s portfolio will consist government
securities and money market instruments. This is
because, No one like to lose his money invested
in high risky of different /securities/assets.
Risk and return analysis
• Some situation the investor was face
purchasing power risk. Even if Investors face
such type of risk, they wants to invest in short-
term securities.
Diversification and Optimization
• No scope for diversification and optimization
in risk neutral investor for their business
because once they are invest in short term
securities ,he has acquired in fixed rate of
return.
Conclusion

• The risk neutral investor is prefer to invest in only short


term government security and money market
instruments which expects a fixed rate of return with
zero risk.
Recommendation
• Even if the risk neutral investor is needs fixed returns
with zero risk ,it is advisable to invest both long and short
term securities like bonds, mutual fund and government
security that maximize their returns by taking minimum
risks. (systematic and unsystematic risk)
Thank you!

You might also like