Professional Documents
Culture Documents
CHAPTER 1 and 2
CHAPTER 1 and 2
Identification of Objectives and Constraints - Identify Return on investment, or ROI. - It can be defined as the monetary
the investment objectives, which refer to any desired profits from making a particular investment. Individuals should
outcomes for the client regarding return and risk. ideally favor investments that yield larger returns, such as equities
Investment Policy Statement - Draft an of companies like Google, Amazon, etc
effective investment policy statement that provides
Risk and Return in Financial Management
valuable direction for investors' resource allocation
decisions. High risk – High returns
Capital Market Expectations - To help investors assess
the potential investment returns and determine the Low risk – Low returns
long-term outlook, formulate expectations for risk and
return of various asset classes. • TYPES OF RISK
Asset Allocation Strategy - There are two strategies to
i. Market Risk – It is also called systematic risk and arise due to
consider here, strategic and tactical. A strategic asset
various market related factors like economic and political
allocation strategy is a long-term strategy that
problems, interest rate and currency fluctuations, etc
necessitates regular rebalancing to ensure you do not
ii. Specific Risks – They are related mostly to company itself. They
deviate from your goals
may be controlled through diversification a monitoring.
2. Execution iii. Credit Risk – This is related to credit worthiness of the
company or business. If the financial conditions of the business is
good, it will be able to meet its current and future obligations and