Investment- Delineating an Efficient Portfolio

This article discusses the fundamental concepts behind optimal portfolio of risky assets and how the addition of a risk-free asset in a portfolio was useful for generating a higher risk adjusted return. It also provides recommendations for investors.

Running head: INVESTMENT- DELINEATING AN EFFICIENT PORTFOLIO
Investment- Delineating an Efficient Portfolio
Name of the Student:
Name of the University:
Authors Note:

INVESTMENT- DELINEATING AN EFFICIENT PORTFOLIO
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Table of Contents
Discussing the investors risk preferences and the implied risk profile of the uncle:.................2
Explaining the fundamental concepts behind optimal portfolio of risky assets:.......................2
Explaining how the addition of a risk-free asset in a portfolio was useful for generating a
higher risk adjusted return:.........................................................................................................3
Recommendations:.....................................................................................................................3
References:.................................................................................................................................4
Appendices:................................................................................................................................5

INVESTMENT- DELINEATING AN EFFICIENT PORTFOLIO
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Discussing the investors risk preferences and the implied risk profile of the uncle:
The investors risk preference plays a significant role, which allows the investor to
generate high rate of return from investment. In addition, the risk preference of the investor is
relevantly low, as they aim to increase the returns from investment, while reducing the risk
factor.
Explaining the fundamental concepts behind optimal portfolio of risky assets:
Investors conduct relevant calculation for identifying the relevant optional portfolio
for reducing the risk from investment and maximising the returns. In addition, the overall
optimal portfolio directly allows the investor to evaluate different investment scopes and
detect the possible move, which can improve the level of returns from investment. The
optimal portfolio relevantly makes the investor determine the level of risk they intend to take
for generating the high level of returns from investment. Hence, investors can use the relevant
measure for allocating and diversifying the risky investments, which can generate high level
of returns from investment (Bhuyan et al. 2014).
The appendix 1 relevantly provides the investors with information that can be used for
detecting the weights of two different assets that portrays the risk and return contributions. In
addition, the eleven different portfolios were mainly drafted in the appendix, which
represents the different level of risk and return attributes that is in accordance with the
optimal portfolio. Hence, the fundamental concept of optimal portfolio is to have the least
amount of risk involved with the investment by analysing different level of risk attributes.
Brandstetter and Lehner (2015) mentioned that investors using the optimal portfolio are able
to secure their investment from the volatility of the capital market.

INVESTMENT- DELINEATING AN EFFICIENT PORTFOLIO
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Explaining how the addition of a risk-free asset in a portfolio was useful for generating
a higher risk adjusted return:
The impact of risk free asset in the portfolio can eb detected from appendix 2, where
the inclusion of the risk-free asset led to the change in the overall portfolio contribution. The
investor use risk free asset for detecting the level of returns that can be generated without
raising the level of risk involved with investment (Bjork, Murgoci and Zhou 2014). The
inclusion of risk free asset would directly result in lowering the overall risk attributes of the
portfolio, as it contributes zero risk to the investment. Hence, the appendix 2 indicate the
relevant change from D.weights and Final portfolio values directly changed due to the
presence of risk free asset. The overall final portfolio has the highest level of exposure in the
risk-free assets, which indicates the overall measure that is conducted by the investors to
reduce the level of risk and maximise the returns from investment (Bowen 2018).
Recommendations:
Therefore, it could be indicated that use of risk free asset in the portfolio is essential
for the investors, which can eventually help in generating high level of returns from
investment. The optional portfolio can also be used by the investors for selecting the adequate
level of weights for investment, which can be used for generating high level of returns with
low risk.

INVESTMENT- DELINEATING AN EFFICIENT PORTFOLIO
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References:
Bhuyan, R., Kuhle, J., Ikromov, N. and Chiemeke, C., 2014. Optimal portfolio allocation
among REITs, stocks, and long-term bonds: An empirical analysis of US financial
markets. Journal of Mathematical Finance, 4(02), p.104.
Bjork, T., Murgoci, A. and Zhou, X.Y., 2014. Mean–variance portfolio optimization with
state‐dependent risk aversion. Mathematical Finance: An International Journal of
Mathematics, Statistics and Financial Economics, 24(1), pp.1-24.
Bowen, H., 2018. Investment in learning: The individual and social value of American higher
education. Routledge.
Brandstetter, L. and Lehner, O.M., 2015. Opening the market for impact investments: The
need for adapted portfolio tools. Entrepreneurship Research Journal, 5(2), pp.87-107.

INVESTMENT- DELINEATING AN EFFICIENT PORTFOLIO
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Appendices:
Appendix 1:
Weights Portfolio
Portfolio
# Asset 1 Asset 2
Standard
Deviation Expected Return
1 100% 0% 10.00% 15.00%
2 90% 10% 10.50% 16.50%
3 80% 20% 11.00% 18.00%
4 70% 30% 11.50% 19.50%
5 60% 40% 12.00% 21.00%
6 50% 50% 12.50% 22.50%
7 40% 60% 13.00% 24.00%
8 30% 70% 13.50% 25.50%
9 20% 80% 14.00% 27.00%
10 10% 90% 14.50% 28.50%
11 0% 100% 15.00% 30.00%
Appendix 2:
Final Portfolio
Weights
Asset
Annual
Return
Market
Portfoli
o
Final
Portfolio
ICICI Pru Focused Bluechip Eqty (G) 22.43% 18.00% 12.94%
Quantum Long-Term Equity (G) 22.78% 10.00% 7.19%
DSP-BR Micro Cap Fund - RP (G) 29.08% 0.00% 0.00%
SBI Emerging Busi (G) 23.60% 0.00% 0.00%
Reliance Equity Oppor - RP (G) 25.08% 0.00% 0.00%
ICICI Pru Exp&Other Services-RP (G) 25.89% 18.00% 12.94%
HDFC Balanced Fund (G) 21.69% 18.00% 12.94%
HDFC Prudence Fund (G) 20.33% 0.00% 0.00%
Birla Sun Life GSec - LTF (G) 9.14% 18.00% 12.94%
R* Shares Golld ETF 12.90% 18.00% 12.94%
Risk Free Asset 8.00% 0.00% 28.10%
Total
100.00
%
D. Weights
Annual

INVESTMENT- DELINEATING AN EFFICIENT PORTFOLIO
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Fund Return Weights
ICICI Pru Focused Bluechip Eqty (G) 22.43% 18.00%
Quantum Long-Term Equity (G) 22.78% 10.00%
DSP-BR Micro Cap Fund - RP (G) 29.08% 0.00%
SBI Emerging Busi (G) 23.60% 0.00%
Reliance Equity Oppor - RP (G) 25.08% 0.00%
ICICI Pru Exp&Other Services-RP (G) 25.89% 18.00%
HDFC Balanced Fund (G) 21.69% 18.00%
HDFC Prudence Fund (G) 20.33% 0.00%
Birla Sun Life GSec - LTF (G) 9.14% 18.00%
R* Shares Golld ETF 12.90% 18.00%