Chapter 5 - Portfolio risk and return (Part I). In this chapter, we will explore the process of examining the risk and return characteristics of individual assets, creating all possible portfolios, selecting the most efficient portfolios, and ultimately choosing the optimal portfolio tailored to the individual in question. | Chapter 5 Portfolio Risk and Return: Part I Presenter Venue Date In this chapter, we will explore the process of examining the risk and return characteristics of individual assets, creating all possible portfolios, selecting the most efficient portfolios, and ultimately choosing the optimal portfolio tailored to the individual in question. The chapter is organized as follows: Section 2 discusses the investment characteristics of assets. In particular, we show the various types of returns and risks, their computation and their applicability to the selection of appropriate assets for inclusion in a portfolio. Section 3 discusses risk aversion and how indifference curves, which incorporate individual preferences, can be constructed. The indifference curves are then applied to the selection of an optimal portfolio using two risky assets. Section 4 provides an understanding and computation of portfolio risk. The role of correlation and diversification of portfolio risk are examined in . | Chapter 5 Portfolio Risk and Return: Part I Presenter Venue Date In this chapter, we will explore the process of examining the risk and return characteristics of individual assets, creating all possible portfolios, selecting the most efficient portfolios, and ultimately choosing the optimal portfolio tailored to the individual in question. The chapter is organized as follows: Section 2 discusses the investment characteristics of assets. In particular, we show the various types of returns and risks, their computation and their applicability to the selection of appropriate assets for inclusion in a portfolio. Section 3 discusses risk aversion and how indifference curves, which incorporate individual preferences, can be constructed. The indifference curves are then applied to the selection of an optimal portfolio using two risky assets. Section 4 provides an understanding and computation of portfolio risk. The role of correlation and diversification of portfolio risk are examined in detail. Section 5 begins with the risky assets available to investors and constructs a large number of risky portfolios. It illustrates the process of narrowing the choices to an efficient set of risky portfolios before identifying the optimal risky portfolio. The risky portfolio is combined with investor risk preferences to generate the optimal risky portfolio. Section 6 summarizes the concepts discussed in this reading. DISCLAIMER: Candidates should understand this presentation is NOT a substitute for a thorough understanding of the CFA Program curriculum. This presentation is NOT necessarily a reflection of all of the knowledge and skills needed for candidates to successfully complete questions regarding this topic area on the CFA exam. 1 Return on Financial Assets Total Return Periodic Income Capital Gain or Loss LOS: Calculate and interpret major return measures and describe their applicability. Page 176 Financial assets normally generate two types of return for investors. First, .
