Assignment

Accounting & Finance Assignment

Question 1

Investment Portfolio

Company

Investment

Beta

Weighting

Share Price (£) Investment Date

No. Of Shares

Share Price (£) Close-out Date

Value (£) Close-out Date

 

Amount

 

BxC

Investment Price

B/E

Close Price

FxG

OMEGA DIAGNOSTICS GROUP PLC

1694.4

0.37

626.928

14.12

120

16.25

1950

Marks and Spencer Group PLC

19690

0.84

16539.6

393.8

50

395.8

19790

LLOYDS BANKING GROUP PLC

4666.7

2.1

9800.07

40.58

115

49.2

5658

Andes Energia PLC

2360

1.5

3540

29.5

80

27.62

2209.6

Barclays PLC

13650

2.1

28665

227.5

60

255.6

15336

BT Group

6375

1.02

6502.5

212.5

30

237.4

7122

PHOENIX GROUP HLDGS

29658

1.07

31734.06

494.3

60

533.5

32010

VODAFONE GROUP

6730

0.599

4031.27

168.25

40

170.00

6800

AQUA BOUNTY TECHNOLOGIES INC

1772.85

0.667

1182.49095

6.69

265

15.50

4107.5

Rexam PLC

13401

0.8

10720.8

446.7

30

448.80

13464

Total

99,998

 

113342.719

 

 

 

108447.1

  Avg Beta

1.13

 

 Gain/(Loss)

8,449

Summary of Results

Total Amount to be Invested

100,000

Amount Invested

99,998

Gain / Loss on Investment

8,449

Average Portfolio Beta

1.13

Return on Investment

8.45%

Note: Refer to the attached excel sheet for detailed computationsQuestion 2

An investment can be defined as a commitment of funds for a period of time that is expected to bring additional funds to the investor. Each investment requires the investor to avoid consuming funds to seek uncertain future benefits. An investment always involves some degree of risk which poses a challenge for choosing appropriate investments (Tuller 1994, 94-96).

Having an optimum portfolio investment calls for minimizing risk in relation to their performance and choose only those investments that will suit the particular characteristics of the investor. The characteristics of an investor depend on how much money an investor wants to invest and how long one wants to invest (Kevin 2006, 100-108).

Before making any investment decision, as an investment advisor, it is mandatory to understand the risk attitude of the customer. If the investment advisor fails to understand the risk attitude of the customer and take decisions that does not reflect the risk attitude of the customer, the investor may find himself in trouble. If the investor is risk averse, investment in low risk securities must be made (Hoover 2006, 255-562). Low Risk securities are associated with low return as there is a direct relationship between risk and return. It is important to make such a decision, because the chances of loss in such securities are very low. On the other hand, high risk securities may offer greater returns, but could also make the investor lose all his money (Sanwal 2007, 140-161).

The approach followed for the above portfolio is to have an optimum level of risk versus return. The selection of stocks is made in such a way that it diversifies systematic risk. For that purpose, investments are done with an appropriate mix in the food industry, telecom industry, energy sector, insurance sector, pharmaceuticals & biotechnology sector and packaging industry. It almost eliminates the systematic risk that is specific to the type of industry (Hirschey 2003, 223-232). Also, investments are done based on the risk appetite. Here, an assumption lies that investor is risk averse and wants maximum return at the assumed level of risk. Thus, the average beta of the portfolio stands at 1.13 which means that the portfolio is almost equivalent to the market risk. The return on investment comes out to be 8.45 percent which is reasonable enough at the level of risk taken.

For the selection of companies, the financials of the companies are thoroughly studies particularly the cash flows, revenues, past financial records, assets, and future profit estimates by the analysts. Price and growth trends are also taken into consideration for investment decisions (Grinold 2004, ...