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Portfolio Management of Stock Prices - PDF

   

Added on  2020-10-22

10 Pages1439 Words188 Views
Portfolio Management

Table of ContentsINTRODUCTION...........................................................................................................................1PART 3............................................................................................................................................1A) Extraction of weekly treasury bill rate and using it as proxy for risk free rate......................1B) Estimation of security characteristic line for each company stock.......................................1Amazon............................................................................................................................................3C) Calculation of total risk using systematic and unsystematic risk...........................................5D) Commenting on the stock and portfolio's performance using above data.............................6CONCLUSION................................................................................................................................6REFERENCES................................................................................................................................7

INTRODUCTIONPortfolio management is process of decision making about the policies and investmentmix, formulating investment plans that is suitable to the objectives of the investors, allocatingdifferent assets as per the risk bearing capacity and the earnings of the individuals andinstitutions. Managing the portfolios mainly deals with identifying the strengths, weaknesses,threats and opportunities in creating balance between Debt and equity, international vs domestic ,safety stocks vs growth stocks. Here , this project discusses about stock prices three companiesnamely bank of America, amazon and BHP Bilton. It will discuss about the securitycharacteristic line for each stock and based on market model and computation of beta andJensen's alpha for each portfolio. Calculation of variance , systematic and unsystematic risk ofevery portfolio (Alexander and Baptista, 2010). PART 3A) Extraction of weekly treasury bill rate and using it as proxy for risk free rateThe yield of 26 week treasury bill rate as taken from the U.S. Department of the treasuryis 2.08 for the average of 26 weeks. This amount is already the average of the 26 weeks yieldswhich will then be used as a proxy for risk free rate in the calculation of beta and Jensen's alpha.B) Estimation of security characteristic line for each company stockBank of America is an multinational financial services firm that is operating in unitedstates of America. It is ranked as the top second bank of America, as of 2016 the bank ofAmerica is 26th largest company in terms of revenue. According to the data the bank of Americais providing a market rate of return of 30.64% and a return on stock of 29.12%. the beta of thecompany is 1.39 and the calculated CAPM is 41.7784 (Arouri, Jouini and Nguyen, 2011). Thesecurity characteristic line is drawn using regression function of excel and defines the datathrough this line.1

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