Investments Analysis and Portfolio Management Assignment 2022

Running head: INVESTMENTS
Investments
Name of the Student:
Name of the University:
Author’s Note:

INVESTMENT1
Table of Contents
Portfolio Overview..........................................................................................................................2
Analysis...........................................................................................................................................2
Capital Asset Pricing Model........................................................................................................2
Optimal Portfolio and Fama-French Model................................................................................3
References........................................................................................................................................5

INVESTMENT2
Portfolio Overview
The Capital Asset Pricing Model can be well applied in order to find out the expected rate
of return that is required on the stock and the same can be well computed with the help of the key
financial factors like the return generated on the market index, the beta of the stock and the risk
free rate prevailing in the stock. On the other hand, in order to construct an optimal portfolio it is
very important that the weights and return that is allocated to each of the stock should be done on
an optimal basis so that the sharp ratio of the portfolio is maximized from the undertaken
approach. In constructing a portfolio it is very important that key factors like risk and return
analysis should be well done and should also be well consistent with the investment goals and
risks according to the investors. The key assumption that has been taken while constructing the
portfolio is that no more than 30% of weight should be allocated to any of the listed 10 stock that
has been taken into consideration (Barberis et al., 2015).
Analysis
Capital Asset Pricing Model
In order to find out the required rate of return on the equity stock key formula that has
been applied in the computation of the required return is as follows:
Required Rate of Return (Re): Risk Free Rate (Rf)+ (Beta*Return on Market - Risk Free
Rate).
The required rate of return for each of the stocks has been calculated by taking the
average return generated by the market index which was inserted in the market return generated
and the beta of each of the stock has been computed by regressing the returns of the stock over
the return generated on the index data (Kuehn, Simutin and Wang 2017). The annual risk free
rate that has been taken into consideration is around 2% which has been divided by 12 in order to
get the monthly risk free rate.
The Alpha for each of the stock has been calculated by taking the actual monthly return
that has been generated by the stock less the expected rate of return that has been computed with
the help of the Capital Asset Pricing Model. The information ratio for the portfolio has been well