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Which of the following statements reflects the importance of the asset allocation decision to the investment process? The asset allocation decision: (LO 5-3)
Helps the investor decide on realistic investment goals.
Identifies the specific securities to include in a portfolio.
Determines most of the portfolio’s returns and volatility over time.
Creates a standard by which to establish an appropriate investment time horizon.
Use the following data in answering CFA Questions 4–6.
|
Investment |
Expected Return, E (r) |
Standard Deviation, s |
|
1 |
.12 |
.30 |
|
2 |
.15 |
.50 |
|
3 |
.21 |
.16 |
|
4 |
.24 |
.21 |
Investor “satisfaction” with portfolio increases with expected return and decreases with variance according to the “utility” formula: U 5 E ( r ) 2 ½ A s 2 where A 5 4.
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