Reference no: EM133078251

Question 1.

Consider this point of view:

"I am interested in generating high returns, so comparing the returns of various stock portfolio managers is the direct way to evaluate performance that I'm interested in. I agree that the returns of money managers managing different kinds of assets (stocks, bonds, commodities, money market funds) should not be compared, because that's an apples vs. oranges comparison. But this "risk adjustment" procedure to adjust the returns of managers in the same asset class takes it too far for me. It makes the analysis unnecessarily complicated, and just confuses the analysis of returns, which is what investors should be interested in. Plus, it relies on the risk adjustment procedures of the CAPM and some very detailed statistical calculations, that most people either don't trust or don't comprehend.

State your opinion of this argument for simplicity in the comparison of portfolio performance. You may wish to state an argument FOR the risk-adjusted return measures as well.

Question 2.

It has been suggested several times in this class that the "Asset Allocation" decision regarding the allocation of an investor's funds among major asset classes is probably the most important investment decision that investors make. After studying the material in the introductory course in Investments, summarize your thoughts about the importance of asset allocation in the investment decision making process. State what you think now about your likely asset allocation decisions once you begin to earn a respectable income and begin to invest for yourself. And explain "WHY" this is your inclination.