Dudley Trudy, CFA, recently met with one of his clients. Trudy typically invests

Dudley Trudy, CFA, recently met with one of his clients. Trudy typically invests in a master list of 30 securities drawn from several industries. After the meeting concluded, the client made the following statement: “I trust your stock-picking ability and believe that you should invest my funds in your best five ideas. Why invest in 30 companies when you obviously have stronger opinions on a few of them?” Trudy plans to respond to his clients within the context of modern portfolio theory.
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a. Contrast the concepts of systematic and firm-specific risk and give one example of each.
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b. Critique the client’s suggestion. Discuss the impact of systematic risk and firm-specific risk on portfolio risk as the number of securities in a portfolio is increased.
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Previously, you submitted an Investment Proposal. The second part of your Investment Project is a follow-up of your Investment Proposal, which consists of a short reflection essay about the securities you recommended for investing. You have to provide an updated Table showing your portfolio. Make sure to include the gain or losses of each individual securities, your total holding-period return, and the effective annual rate (EAR).
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You should include in the analysis at least one of the securities you recommended to buy in your first report. How did it go? Did it go as planned? Why do you think it did not go as planned?
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You may also analyze some of your winners and losers in your portfolio (they could be others than the ones you justified in the first report). Any regrets? What would you have done differently after what you have learned in this course?
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There is no unique way to do a reflection essay. However, make sure to spell out some of your learning experience from this course. What are in your opinion the essential lessons from this course? The takeaways? The length of the reflection essay should be at least 300 words but no more than 600 words. You must submit your reflection essay as a word file in Blackboard.
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Managing a portfolio is fundamental to this course. Therefore, you have to write two reports regarding your trading activities during the term. The first report is your investment proposal, in which you assume that you have $1,000,000 to invest. You may assume that you are either managing the portfolio for yourself or on behalf of a client (aunt, grandparents, parent, etc.).
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AS3 Instructions:
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After studying the different type of securities available to investors in units 2 and 3, you must design an investment proposal.
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The proposal should have:
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1. Your investment strategy. Since this is an 8-week course, you have a very short-time horizon to invest. However, for this proposal, you may assume that you do not have this constraint. For example, you can say, my time horizon to start withdrawing funds is ten years. You may use the Investor Profile questionnaire that you completed in Unit 1 AS3 to help you to select the strategy.
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2. Asset allocation. Asset allocation must be consistent with your investment strategy.
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3. Security selection. You may choose any securities you want. However, mutual funds and exchange-traded funds (ETFs) provide a relatively easy way to reach the asset allocation you have chosen. As part of this assignment, you must include at least three common equity stocks in your portfolio. Therefore, make sure you include them as part of the securities of your portfolio. You have to justify why you are purchasing (or short selling) these stocks (see requirement # 4). Note: you will need to check the prices of the securities you have chosen at the end of the term; therefore, create a watchlist for these securities (for example using Finance Yahoo, Finance Google or any other free finance website that offer this service).
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4. Stocks Justification. You have to substantiate the selection of three (3) of your picks, providing a compelling story of why you are buying or short selling the stocks. You have to back up the justification by showing that you have done some research on the stock and citing your sources. You cannot just say “my guts tell me I should buy this company,” or “I am buying this company because someone recommended me to buy it.”
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5. Presentation of the portfolio. This is a table showing portfolio weights. The weights are the proportion (or percentages) of each of your securities relative to the total investment you are making. The table must also show the portion of your asset allocation relative to the total investment. An example of a portfolio is attached (“Example of Portfolio”).
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