Task - Portfolio

For this research and analysis assessment, you have been given three pairs of securities from three industry groups - that is, one pair from each of three industry classifications - a total of six securities.  Each pair could be considered to be competitors in their market.

You have also been given certain market information for each security covering a period of three months. 

For each security, an initial "theoretical" investment of $10,000 has been established - your starting portfolio value is then $60,000.

Note: due to varying share prices the above investment has been established with the shares "bought" resulting in the closest amount to $10,000.

Now, refer to the securities in the table on the Answer Template tab "Securities"

Share Price Data

a) Recorded in the table in the table Answer Template tab "Share Price Data" are the weekly share prices for each of the 6 securities for a period of 13 weeks.

b) Also recorded in the same table is the All Ordinaries index for each week.

Part A - The following calculations have been done for you (see the Portfolio on the Answer Template Tab 'Portfolio')

• Number of shares
• Unit price when purchased
• Initial portfolio value
• Unit closing price
• Dividends declared
• The total dollar gain/loss of each security for the 3 months (including dividends).
• Percentage gain/loss. Dollar gain/loss divided by initial value expressed as a percentage.
• Portfolio totals for the Initial Portfolio Value, Closing Portfolio Value, Dollar Gain/Loss and %Gain/Loss.

Notes for Part A: 

The beta for individual securities and the market as a whole will be constantly moving in reaction to both market conditions and the performance of individual securities. 

For this section you should use the beta scores listed below for the industry groups

• Banks - β 0.13
• Food and Staples Retailing - β 0.08
• Media - β 0.23

This is also recorded on the Answer Template Portfolio tab.

Beta for individual securities has also been given.

Required - For each selected pair of securities, compare the Beta for each security and for the relevant industry group.  From this comparison:

(i) Which security in each pair is expected to have the better future return if the market conditions are positive (i.e. a bull market)?  Briefly explain your reason(s).

(ii) Which security in each pair is expected to perform better in poor market conditions (i.e. a bear market)?  Briefly explain your reason(s).

(iii) If the market conditions are positive, would you expect any security to have a better return than the average return for the relevant sector?  Briefly explain your reason(s). If the market conditions are positive, would you expect any security to have a better return than the average return for the All Ordinaries Index?  Briefly explain your reason(s).

(iv) Using the calculated return on each security from Part A, has each security performed up to expectations based on the Beta coefficient, in comparison to its competitor within the pairs? Briefly explain your answers.

(v) If the risk free rate of return is 6% p.a., what is the market risk premium (or discount when there is a bear market) for each of your selected securities based on the return over the three month research period?

Use the Market Premium or Discount section on the Answer Template Tab 'Portfolio'

The market risk premium or discount formula that should be used is: Market Premium = Return on Security - Risk Free Rate (if positive, a Premium or if negative, a Discount)

In the above Market Premium or Discount section, you may add numbers or formulae as required)

Part B - If you are not risk averse, identify at least one risk taking strategy that may help maximise any portfolio's return in the future.

(i) Identify at least one risk minimisation strategy that may improve the possibility that any portfolio's return will not be significantly different from the expected market return.  How may this affect the portfolio's return in the future?

Part C - The security price for most securities dropped after the dividend was declared. Why would this happen?

(i) For each of the securities in the portfolio, identify whether you would retain or sell (either partly or in whole) the security at the end of the research period.  Give your reasons for your decision.

(ii) If you choose to sell any particular security, what would you do with the proceeds from that sale and why? (Your discussion should consider whether you would buy more of current securities in your portfolio? Would you replace the security with a new security?  Would you use the same sector for new securities or a new sector?)

Attachment:- Assignment.rar