UHFIB is a US-based investment fund that approached you to seek help with investing in a new portfolio. You are asked to identify appropriate S&P 500 listed firms (e.g. approx. 4-6 firms) to invest $25m of newly raised cash. If required, you may also recommend that UHFIB use lending/borrowing to achieve the required target return (note: additional funds required for lending/borrowing would be in addition to the $25m of newly raised cash).

You have been provided with the following guidelines.

The investors of UHFIB:

• require an annual return of 6%-8%
• are risk-averse (i.e. investors prefer the least risk for a given return)
• have an investment horizon of approx. 10 years
• do not have high liquidity requirements
• are highly paid bankers

We can make any further assumptions about the investors current situation and preferences.

task is to:

Recommend an appropriate asset allocation for UHFIB, justify your selected asset allocation, and provide information regarding the risk/return profile of the selected assets. Explain why your recommended asset allocation is likely to achieve the target of 6%-8% annual required return while minimizing risk by using appropriate theory and/or data/empirical evidence.

1. Explain/justify your Asset allocation

Your explanation/justification should take into consideration:

• UHFIB investors characteristics (e.g. level and source of income, tax, liquidity consideration, etc.)
• The expected return of an asset
• Risk of the asset (e.g. beta, standard deviation)
• Other characteristics (e.g. dividends, ethical considerations, etc)
• Strength/direction of correlation between assets
• Portfolio optimization in excel (Optional)

2. A table showing the weight, expected return, and risk of each asset as well as the expected return of your whole portfolio.