Optimizing Portfolio Composition for Maximum Return: A 3-Year Analysis
Added on 2019-11-08
8 Pages1724 Words165 Views
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Running head: FINANCEFinanceName of the Student:Name of the University:Authors Note:
1FINANCETable of ContentsQ1.a) Depicting the least risky combination of these two assets:..............................................2Q1.b) Depicting the risk of the new portfolio:...........................................................................2Q2.a) Depicting why Tesco’s prices falls:.................................................................................3Q2.b) Depicting the decision taken by CEO of Tesco:..............................................................3Q2.c) Depicting the reaction of the 2004 Tesco share fall:........................................................4Q3. Depicting the price of Treasury bill:...................................................................................5Q4.a) Depicting the yield to maturity for the T-Bill:.................................................................5Q4.b) Calculating the Macaulay duration of securities duration of the portfolio:.....................5Q4.c) Depicting the recommendation for the composition of the portfolio:..............................6Q4.d) Using excel solver for obtaining portfolio Macaulay duration of 3.25 years:.................6Q4.e) Depicting whether default risk is major concern for the company:.................................7Q4.f) Depicting new value of the portfolio:..............................................................................7Reference and Bibliography:......................................................................................................9
2FINANCEQ1.a) Depicting the least risky combination of these two assets:Stock AStock BMeanVarianceStedv0%100%11.00%1.96%14.00%10%90%11.30%1.78%13.34%20%80%11.60%1.67%12.91%30%70%11.90%1.62%12.74%40%60%12.20%1.65%12.83%50%50%12.50%1.74%13.19%60%40%12.80%1.90%13.80%70%30%13.10%2.13%14.61%80%20%13.40%2.43%15.60%90%10%13.70%2.80%16.74%100%0%14.00%3.24%18.00%The investment of 30% in Stock A and 70% in Stock B can give the least standarddeviation.Q1.b) Depicting the risk of the new portfolio:ParticularsWeightReturnsStock A24%14%Stock B56%11%Risk free return20%2.5%Portfolio returns10.02%Q2.a) Depicting why Tesco’s prices falls:The overall Tesco’s prices fell due to the overstated profits depicted in the revenuerecognition irregularities of the company. This mainly indicates that the company overstatedits profits in the financial report for generating higher returns from investment. The overallmanipulations of the financial report of Tesco resulted in a sharp decline and its share price,as the company did not match the Expectations of the overall shareholders.Furthermore, theannual drop of profits in two decades of the company has been wiped out around 10 billion
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