Project Report: Investment Analysis and Portfolio Management - Finance

This project report provides an investment analysis and portfolio management study. The analysis includes the historical return, standard deviation, and beta calculations for AIR, FPH, and NZX 50, leading to risk and return assessments. CAPM is used to determine the cost of equity. The report further analyzes the two-stage dividend discount model, estimating the dividend value and stock price of AIR NZ. The report also discusses portfolio evaluation approaches based on Jorion (1992), emphasizing the importance of considering risk, return, and volatility for constructing an effective portfolio. References include Davies & Crawford (2011), Garrison et al. (2010), Hansen, Mowen & Guan (2007), and Jorion (1992).

Running Head: Investment analysis and portfolio management
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Project Report: Investment analysis and portfolio management

Investment analysis and portfolio management
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Question 1:
Analysis:
The calculations explain that the total historical return of both the security and index
are 2.54%, 3.33% and 1.19% of AIR, FPH and NZX 50 respectively. Further, it briefs that
the standard deviation of all the three stocks are 0.08, 0.06 and 0.03. It leads to the decision
that the risk of AIR is higher in the market and the return of FPH is higher. The beta
calculations explain that the volatility of stock price of AIR is 1.12 and the volatility of FPH
is 0.89. It explains that the volatility of AIR is lower (Davies & Crawford, 2011).
Further the risk free rate of the market is 5.07%. It explains that the 5.07% is the
minium return from the market. Risk and return graph of the companies and the index are as
follows:
(Garrison et al, 2010)
It explains that the risk of index is lowest and the return of FPH stock is higher in the
market. The CAPM study further explains that the cost of equity of both the companies is
6.48% and 5.56%. In further explains that if the equal weight portfolio would be made than
the total return would be 2.93%. It explains that it is better for the investors to invest in
individual security rather than portfolio to manage the performance.

Investment analysis and portfolio management
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Question 2:
Analysis:
Further, the two stage dividend discount model has been calculated. The cost of
equity of AIR NZ has been calculated firstly and it has been recognized that the total required
rate of return of the company is 6.57%. The growth rate of the company is 2.10%. It explains
that the estimated dividend of the company after 10 years would be $ 0.03. It further explains
that the total value of the dividend would be 0.57. And the stock price of the company in the
beginning of 2015, AIR NZ is $ 2.7 per share (Hansen, Mowen & Guan, 2007). It explains
that the investment should be made by the investors into the company as the Ke of the
company is higher as well as the stock price of the company is also explaining about rapid
positive changes.

Investment analysis and portfolio management
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Question 3:
Jorion (1992) has explained about the various approaches on the basis of that a
portfolio could be evaluated. The article explains that many mathematical models do not take
the concern of entire performance of the security and the portfolio and thus the result get
manipulated. Further, he has evaluated the government bonds of World Bank market and it
has been found that the portfolio must be constructed and evaluated by the investors on the
basis of risk, return, volatility etc factors. So that, a better portfolio could be constructed by
the investors which would offer huge return to the investors of the company.

Investment analysis and portfolio management
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References:
Davies, T. & Crawford, I., (2011). Business accounting and finance. Pearson.
Garrison, R. H., Noreen, E. W., Brewer, P. C., & McGowan, A. (2010). Managerial
accounting. Issues in Accounting Education, 25(4), 792-793.
Hansen, D., Mowen, M. & Guan, L., (2007). Cost management: accounting and control.
Cengage Learning.
Jorion, P. (1992). Portfolio optimization in practice. Financial Analysts Journal, 48(1), 68-
74.