Finance Project: Analysis of Investment Portfolio Risk and Return

This finance project undertakes a comprehensive analysis of an investment portfolio, examining the relationship between yearly returns and the required rate of return for various companies including 3D Systems, WBAI, Abbott, Accenture, and others. The analysis delves into security risks, utilizing beta values to assess the risk associated with each stock and proposing a diversification strategy to mitigate these risks. The project emphasizes the importance of gathering information to enhance investment knowledge, illustrating how it aids in evaluating risks and making informed investment decisions. The project concludes that the diversification strategy reduces the risk of making actual investment decisions. Supporting data, including return percentages, beta values, and investment amounts, are presented in tables, alongside references to relevant financial literature.

FINANCE PROJECT

TABLE OF CONTENTS
Comparison of yearly return to reuqired rate of return....................................................................1
Security risk and idea of diversification..........................................................................................1
Role of gathering on information on enhancing knowledge of invesment......................................1
Do risk of making actual investment decision reduced...................................................................2
REFERENCE..................................................................................................................................3
APPENDIX......................................................................................................................................4

Comparison of yearly return to reuqired rate of return
On analysis of fact is can be observed that in case of 3 D systems expected return is 18% while return on same was positive in
year 2016. In case of WBAI return was -20% in year 2016 and expected return is 13%. Means that for risk taken one will need to gain
13% return on invested amount. In case of Abbott laboratory required rate of return is low which is 12% relative to previous year
return of 12%. For Accenture also required rate of return is 12% which is lower then return of 2016 which was 15%. In case of
American express required rate of return and return gained in 2016 are same. However, in case of Alliance data systems, Aircastle and
Apoolo Global management required rate of return is already high means that one need to gain return more then generated in 2016 for
level of risk that is taken on these firms shares.
Security risk and idea of diversification
There is very high risk in case of 3D systems, Air Castle limited and Alliance data systems as beta value is 1.66, 1.43 and 1.11.
This reflect that there is high risk associated in case of these companies shares. Hence, proportion of 3D systems, Air Castle limited
and Alliance data systems 5%, 5% and 13%. It can be observed that proportion of these high risky securities is very low except in case
of Alliance data systems whose prportion is moderate in portfolio (Zolotoy, Frederickson and Lyon, 2017). This is done because in
current time period data analytics domain is growing at fast rate and there is huge groth potential in mentioned business firm. Higher
weight is given to Accenture whos beta value is 1 and have huge growth potential in terms of business expansion. Allianace data
system weight is 13% because its beta value is 1.11 and is operating in analytics domain which is accelerating at rapid rate in USA ans
across globe. It can be said that portofolio is diversified in proper manner.
Role of gathering on information on enhancing knowledge of invesment
Yes, gathered information increasing knowledge of investment because it help in evaluating risk that is associated with varied
companies shares and rate of return that is necessary to be earn on invested amount (Adam, Marcet and Nicolini, 2016). On basis of
these inforamtion and by tracking stock market it can be identified whether it will be better to make investment or not in firm or if
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investment already made it must be exit or remain in firm. Thus, gathering of these information help in makin portoflio diversified in
nature.
Do risk of making actual investment decision reduced
Risk of making actual investment decision get reduced because protfolio is diversified and less proportion is given to each
individual stock in the portfolio. It can be seen from table that maximum portion is given to American express, WBAI and Accenture
up to 20%. All these firms have lot of growth potential and due to this reason up to 20% portion is given to them in portfolio. It can be
said that actual investment decision get reduced in terms of risk.
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REFERENCE
Books and Journals
Zolotoy, L., Frederickson, J.R. and Lyon, J.D., 2017. Aggregate earnings and stock market returns: The good, the bad, and the state-
dependent. Journal of Banking & Finance. 77. pp.157-175.
Adam, K., Marcet, A. and Nicolini, J.P., 2016. Stock market volatility and learning. The Journal of Finance. 71(1). pp.33-82.
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APPENDIX
Table 1Required rate of return and return generated in 2016
Company name 2015 return 2016 return Expected return Beta Required rate of return
3D systems -73% 35% 58% 1.66 18%
WBAI 19% -20% -21% 1.06 13%
Abbott -16% 20% 20% 1.00 12%
Apollo Global Management -36% 25% 25% 1.08 13%
Accenture 18% 15% 15% 1.00 12%
Alliance data systems corporation -3% -16% -16% 1.11 13%
Aircastle limited -2% 2% 2% 1.43 16%
American express -25% 10% 10% 0.83 10%
Table 2Portfolio
Investment amount 100000
Company name Sector
Retu
rn Beta
Required
rate of
return
Wei
ght
Share
price
Number of
units
Investment
amount
Expected
return
3D Systems Technology
-
38% 1.66 0.18 5% 13.29 376 5000 58%
WBAI Data processing -1% 1.06 0.13 10% 15.33 652 10000 -21%
Abbott Pharmaceuticals 4% 1.00 0.12 20% 21.07 949 20000 20%
Apollo Global
Management PE firm
-
10% 1.08 0.13 7%
19.3600
01 362 7000 25%
Accenture Technology 33% 1.00 0.12 20%
117.129
997 171 20000 15%
Alliance data
systems
Data systems and
consulting
-
19% 1.11 0.13 13% 228.5 57 13000 -16%
Aircastle limited Aviation 0% 1.43 0.16 5% 20.85 240 5000 2%
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American express Financial services
-
16% 0.83 0.10 20%
74.0800
02 270 20000 10%
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