Prior to beginning work on this assignment, read chapter 7 and 8 in the textbook Jones, C. P., & Jensen, G. R. (2020). Investments: Analysis and management (14th ed.).

Your client has asked you to recommend investments for the equity segment of their portfolio. The client is 40 years old, and the portfolio is for retirement. The client has an average risk profile and very little investing experience. You are planning to recommend investing in the 20 securities you purchased in Stock-Trak. Prepare a report for the client that justifies and explains the 20-security portfolio for the client based on modern portfolio theory.

In your Asset Allocation Report, include the following:

Create a table and list the 20 stocks you chose to purchase for the Stock-Trak investment ( please see attachment to be added) .

Identify the name, ticker symbol, price per share, and total amount of trade.

Identify the category and industry each stock belongs to.

Calculate and list the weight of each security based on its market value and the total market value of this 20-security equity portfolio.

Summarize the trading costs you incurred to construct this equity portfolio. Explain the total costs incurred both in terms of dollars and the percentage of asset.

• Explain the concepts of systematic and nonsystematic risk and how this portfolio is using asset allocation to reduce nonsystematic risk.

Calculate the arithmetic and geometric mean returns for each stock based on the last five years.

• Calculate the expected return of this portfolio.
• Use the weight of each security based on the market values of the 20 securities and the total market value of this 20-security equity portfolio.
• Use the geometric mean return (historical) as the expected return for each stock.
• Calculate the standard deviation of each stock, using data from Stock-Trak. Pull the standard deviation of each stock.
• This is the monthly standard deviation.
• To determine the annualized standard deviation, multiply the monthly standard by the square root of 12.
• Annual Std. Dev. = (SQRT 12) * Std Dev.

Based on the standard deviations for each stock in your portfolio and their weights, estimate the risk of this portfolio. Justify your estimate based on the risk of each individual security and the theoretical covariances among all pairs of securities in the portfolio. (See Figure 7-5, the Components of Portfolio Risk).

• Compare the portfolio expected return and risk to the expected return and risk for each security alone.
• Construct a table that creates a second portfolio with these 20 securities but that changes the weights. Create a portfolio that would achieve at least a 100 basis points (bp) difference in expected returns (either plus or minus). (Note: You can alter the weights without worrying about maintaining round lots of ownership).
• In the table identify the name, value, weight, and expected return of each security.

Calculate the expected return on this second portfolio based on these new weights.

• Estimate the risk of this second portfolio.
• Discuss where the two portfolios would appear on a Markowitz efficient frontier.
• Explain how an investor would choose between these two portfolios based on their indifference curve.