It is a case study for portfolio management for Finance Investments course. The question has been attached in the file as well as the template. Chapter 13 is also attached.
Case Study: Client Investment Portfolios
Objective: To evaluate and select suitable investment portfolios for three clients with different financial situations, goals, and risk tolerances. The study aims to determine appropriate asset allocations, assess portfolio returns, and evaluate performance using key financial metrics like the Sharpe ratio, Treynor measure, and Jensen’s measure, aligning decisions with each client’s objectives and risk preferences.
Assignment Instructions:
Step 1: Read and study Chapter 13: Managing Your Own Portfolio.
Step 2: Identify the investment objectives and risk tolerance of the following clients.
Client A: Young Professional
Age: 30
Income: $80,000/year with a steady growth trajectory
Tax Consideration: Can handle some tax burden for high returns.
Characteristic: Focused on long-term growth with diversification, and willing to take on some level of risk to achieve higher returns.
Client B: Entrepreneur
Age: 45
Income: Highly variable (annual average $180,000)
Tax Consideration: Prefers long-term investments to defer taxes.
Characteristic: Capable of handling risk and willing to engage in speculative investments for the potential of higher returns.
Client C: Retired Individual
Age: 65
Income: Fixed pension of $50,000/year
Tax Consideration: Wants tax-efficient investments.
Characteristic: Conservative, seeking safety and stable income from investments.
Step 3: Select a suitable portfolio for each client.
| Category | Conservative (low return/low risk) | Moderate (average return/average risk) | Aggressive (high return/high risk) |
| Common stock | 15% | 30% | 40% |
| Bonds | 45% | 40% | 30% |
| Foreign securities | 5% | 15% | 25% |
| Short-term securities | 35% | 15% | 5% |
| Total portfolio | 100% | 100% | 100% |
| Portfolio Standard deviation | 10% | 18% | 30% |
| Portfolio Beta | 0.8 | 1.2 | 1.6 |
| Category | Average annual return |
| Common stock | 10% |
| Bonds | 5% |
| Foreign securities | 15% |
| Short-term securities | 2% |
Step 3: Calculate the portfolio returns for each portfolio.
Step 4: Assess the portfolio performance using Sharpe’s ratio, Treynor’s measure, and Jensen’s measure. Discuss which portfolio offers higher risk-adjusted returns based on these performance metrics.
Risk-free rate is 3.5%
Market return is 9%
Step 5: Use the case study format to develop a concise and structured report, no longer than 4 pages. The report must include:
An analysis of the client’s investment objectives (e.g., safety, income, growth, aggressive growth) and risk tolerance.
A selected portfolio that aligns with the client's objectives.
Calculations of portfolio returns based on asset allocations and asset returns.
Calculations of Sharpe’s ratio, Treynor’s measure, and Jensen’s measure.
Discuss which portfolio offers higher risk-adjusted returns based on these performance metrics.
Use of AI Tools
You are permitted to use AI tools to:
Enhance your understanding of financial concepts and terminology
Verify or cross-check facts and definitions.
However, AI must NOT be used to:
Generate the final written report or responses.
Copy AI-generated content directly into the submission.
Use AI to bypass personal analysis, critical thinking, or the required research process.
Academic Integrity Reminder:
All work submitted must be your own. Misuse of AI, including AI-generated plagiarism, will be subject to academic integrity policies. Proper citations must be provided for any external sources used.
