A Comprehensive Analysis of Risk and Return in Financial Investments

This report analyzes the risk and return associated with financial investments, focusing on a specific investor's preferences and portfolio optimization. The report evaluates different portfolio options, considering the investor's risk tolerance and financial goals. It explores the concepts of implied risk profiles, optimal portfolio selection, and the relationship between risk and return. The analysis suggests specific investment strategies, including recommendations for asset allocation and risk management. The report emphasizes the importance of understanding investment statistics and making informed decisions based on individual financial needs and risk preferences. The references include various sources such as financial accounting theory and managerial finance.

AFIN818 Session 2 2017 Case Study Assignment Report
STUDENT ID:
Report
Introduction:
It is required for every investor to analyse the risk and return of the financial assets in which
the investment is done. This report briefs the user about various levels through which a goof portfolio
could be analysed. This report mainly depict about an investor “uncle” and their investment.
Investor risk preferences:
Risk preferences are mainly related to the attitude of an investor towards the risk. This is the
key factor dor the investor to make a better decision about the performance of the portfolio. Through
this case, it has been analysed that the investor is looking for lower risk. The max risk he could bear is
18% from the portfolio. According to the given calculations, the portfolio 3 is better in case of the risk
(Deegan, 2013).
Implied risk profile:
Implied risk profile depict about the total risk which is occurred in order to invest the amount
in some securities or portfolio. In the terms of finance, the implied risk could be seen according to the
associated return. According to the case, it has been found that the Uncle doesn’t want to face higher
risk and that is why he is looking for the portfolio in which lesser risk is associated (Kaplan and
Atkinson, 2015).
Optimal portfolio of risky assets:
Through the calculations, it has been analysed that the optimal portfolio of the asset is the
level where the risk and return of the portfolio is in the favour of the investor. According to the given
case, it has been analysed that the portfolio 7 is better if entire risk and return factor is considered as
1 | P a g e

AFIN818 Session 2 2017 Case Study Assignment Report
STUDENT ID:
the return would be high at this point with lesser risk occurrence chances. So the Uncle is suggested to
invest 40% amount in the first assets and 60% in the second assets (Du and Girma, 2009).
Risk and return:
Through the calculations, it has been analysed that the risk and return of each portfolio is
different due to different cone efficient attached with it. Through these calculations, it has been
analysed that the inventor is required to invest into the assets according to their requirement. If the
return factor would be considered than the associated risk would also be higher at the same time, if the
risk factor would be consider than the return would be lower (Gitman and Zutter, 2012). Through the
analysis, it has been found that the risk and return must be set in a manner that the investor could get
high benefits through it.
Recommendation:
According to the given calculation of the portfolio, it has been analysed that the expected risk
of portfolio one is lower but if both the assets are taken into consideration than the risk and return of
the portfolio would vary. According to the given calculations, it has been found that the portfolio 7
would be better for the investor to invest the amount and achieve the goal. Thus the investor is
required to understand each concept and statistics of investment and must make a decision
accordingly.
2 | P a g e

AFIN818 Session 2 2017 Case Study Assignment Report
STUDENT ID:
3 | P a g e

AFIN818 Session 2 2017 Case Study Assignment Report
STUDENT ID:
Appendix: Figures and Tables
4 | P a g e

AFIN818 Session 2 2017 Case Study Assignment Report
STUDENT ID:
References
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.
Du, J. and Girma, S., 2009. Source of finance, growth and firm size: evidence from China (No.
2009.03). Research paper/UNU-WIDER.
Gitman, L.J. and Zutter, C.J., 2012. Principles of managerial finance. Prentice Hall.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
5 | P a g e