Certification: PRM Exam I Chapter: Portfolio Mathematics LOS: Describe tolerances and preferences for Risk vs. Return We earlier learned that investors can diversify their risk by allocating their investments into various assets. How different investors choose investments depends on their tastes and preferences. For any investor the investment decision can be broken down into two

# Investment Management

## Probability of Attaining a Return Goal

Earlier we looked at calculating the probability of beating a fixed target. Now we will look at calculating the probability of beating a benchmark which is itself stochastic. Let us consider two assets A and B with the following details: Mean Standard Deviation Correlation A B We have a total of $10 million to invest.

## Probability of One Portfolio Outperforming Another Portfolio

Let us consider two assets A and B with the following details: Mean Standard Deviation Correlation A B We have a total of $10 million to invest. Our objective is to reach a target return of $5 million. Let us look at the following three options and find out the probability of reaching our target

## Diversification and Portfolio Risk

## Constructing an Efficient Frontier

The concept of Efficient Frontier was first introduced by Harry Markowitz in his paper on Portfolio Selection (1952 Journal of Finance). The portfolio theory considers a universe of risky investments and explores these possible investments in order to find the optimum portfolio. So, for a given amount of risk, MTP explains how select a portfolio

## All You Wanted To Know About ETFs

In the recent years, Exchange Traded Funds (ETFs) have become quite popular and many different products in this category have entered in the market.