--%>
Assignment Help - homework help

  Portfolio and Portfolio Selection Model

Portfolio:

All types of assets that people diversify. So, the important issue in portfolio is the portion of each type of asset. How to choose (or allocate) the combination of riskiness and rate of return will depend upon each person’s attitude toward riskiness or uncertainty.

Portfolio Selection Model:

Two types of assets: safe vs. risky assets

rf : rate of return of safe (or risk-free) asset
rk : rate of return of risky asset.

We can simply imagine that rf < rk .

To express the level of riskiness we are able to adopt the standard deviation of the rate of return (σ).

Therefore let’s assume that rk has the standard deviation of σk .

Suppose a person has $1 worth of wealth and s/he wants to have a as a type of risky asset and (1− a) as safe asset. Based on this information we can calculate the rate of return of this portfolio (rp) and level of riskiness (σp) as follows:

rp = ark + (1− a)rf  ........(ii)

σp = aσk      ...............(iii)

Finally, the question is to get the specific value of a in this portfolio selection model. Using utility function with the insertion of two factors, rp and σp , we can set up:

U = U(rp , σp)  .........(iv)

If this person is risk averse, s/he thinks that σ p will be a “bad.”

From (ii) we are able to get:

rp = rf + a(rk − rf)  ..........(v)

Plugging a = σp /σk into (v), we can get the final expression:

1803_portfolio.jpg

1781_portfolio.jpg

A: a = 0. B: a = 1

(rk −rf )/σk: price of risk

Latest technology based Microeconomics Online Tutoring Assistance

Tutors, at the www.tutorsglobe.com, take pledge to provide full satisfaction and assurance in Microeconomics help via online tutoring. Students are getting 100% satisfaction by online tutors across the globe. Here you can get homework help for Microeconomics, project ideas and tutorials. We provide email based Microeconomics help. You can join us to ask queries 24x7 with live, experienced and qualified online tutors specialized in Microeconomics. Through Online Tutoring, you would be able to complete your homework or assignments at your home. Tutors at the TutorsGlobe are committed to provide the best quality online tutoring assistance for Microeconomics Homework help and assignment help services. They use their experience, as they have solved thousands of the Microeconomics assignments, which may help you to solve your complex issues of Microeconomics. TutorsGlobe assure for the best quality compliance to your homework. Compromise with quality is not in our dictionary. If we feel that we are not able to provide the homework help as per the deadline or given instruction by the student, we refund the money of the student without any delay.