Financial Management & Corporate Finance Case Study

Selecting Assets: Silver Oak Research’s Risk-return Dilemmas

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Abstract:
This case study is primarily written to discuss the trade off between risk and return described by Harry Markowitz in his Modern Portfolio Theory (MPT) in 1952, which still holds the ground even after 58 years of its propagation and facing a lot of challenges over its assumptions from fields such as Behavioral Science. It helps the investor to create efficient portfolio where returns are maximum for a given amount of risk. The case study presents the dilemma of a senior research analyst at Silver Oak Research, who has to conduct a risk and return trade-off for a new client. The case study provides enough scope to discuss and understand the concept as well as measurement of risk and return. It further helps in understanding the Efficient Frontier and Capital Market Line.

Pedagogical Objectives:

• To understand the concept, importance and measurement of risk and return
• To understand the real and nominal risk free rate and risk premium
• To understand the relationship between risk and return with the help of Security Market Line.

Keywords : Efficient Frontier, Capital Market Line, Risk and Return, Modern Portfolio Theory, Harry Markowitz, Sensex, Selection of Stocks, Trade off, Risk Free Return, Market Return, Beta, Bill Returns, Bonds Returns, Stock Returns