Investment Portfolio

 For this portfolio 21 calculations were carried out. All the selected assets have given the positive return which shows that all these will work well together and it is a good group. There is a very good chance of all of your securities increasing in future. To estimate what proportion of your capital to invest in each of the security, I did a calculation to see the proportion of risk and percentage of expected return for each of asset. I made an assumption of the probability figure used and then I multiplied the return percentage with it. To find the proportion of risk I had to do standard deviation to get to this. The figured achieved at the top by multiplying return percentage probability is taken away from the return percentage to provide the deviation which is later squared. I have carried a sensitivity analysis and all of the results have 3 scenarios of Boom, growth and Recession. These results were then added together and the square root was calculated to show the risk factor. All this is shown clearly in Appendix.

Equity Shares

These represent an ownership claim on the earnings and assets of a corporation. The unique feature of investing in stock market is that shareholder has as limited liability. This does not mean that it has low risk all this means is that if company goes Bankrupt you would only lose your original investment. The actual risk is calculated for all 7 assets and shown by standard deviation. To create a balanced portfolio the expected return is also calculated.

• J Sainsbury Plc
• Carphone Warehouse Plc
• Travis Perkins

J Sainsbury Plc

I am recommending that Mrs Weyl invests 5% of her investment in this company which is equal to £12500. This is well established public company which has performed really well over the past years. I strongly feel as this will grow during the period of you investing in this equity.  The employment rate of J Sainsbury is increasing which shows relation to people’s spending power increasing leading to generation more business for the company. They actually got to satisfy big range of customers, it being almost a leader because of it diverse range of products and savings it is very popular among consumers. This is beneficial for all the stakeholders of the company; especially increase profit figure will boost the return for investors.

Travis Perkins

Travis Perkins is a leading company in the Builders' Merchanting and Home Improvement markets. As a major PLC, it is a leading supplier to one of the largest UK industries, building and construction, and continues to follow its successful growth strategy of acquisition and organic investment. This shows that company’s aims are to grow bigger by day, which shows that investors have more chance to increase their returns. I recommend that Mrs Weyl Should Invest 5% of her capital in This Company which is £12500.

Carphone Warehouse Plc

This is been very popular recently and hitting the front page news. Carphone Warehouse have started to given telephone land line and broadband package called talk talk which has been very popular and made a lot of business for Carphone Warehouse. They are recently taken over AOL, which shows their aim to grow bigger. This will provide investors to have great opportunity for high returns. I recommend that Mrs Weyl Should Invest 20% of her capital in This Company which is £50,000.

The Total Amount Invested in equity securities is 30% and £75,000.

Debt Security

I have chose three UK government bonds. Bond D, E and F.  This carries least amount of risk it could also be called a risk free investment. This means that in 15 years time when you will sell your portfolio you be guaranteed your original investment from these bonds. Bond D needs to be renewed every 4 years, bond E need to be renewed every 3 and bond F needs to be renewed every 5 years.

 

Bonds                                                 Redential Yield

Bond 1 (D)   4 yrs Tr 4.25 pc `11                        5.33        

Bond 2 (E)   3 yrs Tr 4.75 pc  `10                        5.41

Bond 3 (F)   5 yrs Tr 5pc        `12                        5.26

Direct Saver Alliance and Leicester

This gives interest rate of 4.49% AER annually on £25000. The interest you will earn will be £1122.50 and after 15 years £16837.50. This is quite high I have compared with many different banks; the initial offers looks good such as this one was offering 5.64% before tax, but after tax has been accounted for the actual rate is virtually similar for most of bank accounts. Investing 10% of capital in this deposit account.

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Conclusion

There might be risks attached to this portfolio in future, as the interest rate for the deposit account could increase or decrease, leading to receiving less money you’re your security as anticipated. I would advise to make it fix so it would not fluctuate with inflation. In all my other calculation boom and recession is taken into account; however global rise could lead to further problems. There could be unforeseeable circumstances such as war that could affect your securities. The debt securities will be at most risk. To calculate overall risk I have calculated weighted average for this portfolio. This calculation is carried out by multiplying the standard deviation by the percentage of the portfolio invested in each security. The portfolio Risk was calculated by taking the square root of portfolio variance. The expected return for this portfolio is 10.118%, therefore, giving an estimated expected return of £25 295. Investing in this portfolio would have an estimated risk of only 9.055%.  

Appendices

Appendix A

Returns

Standard Deviation (Risk)

Co-variances

 

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Bibliography

        Corporate financial management Glen, Arnold (2005)

Modern portfolio theory and investment analysis, Edwin J, Elton/Martin J        .Gruber/Stephen J Brown (2004)

Analysis for investment decisions, Bryan Carsberg (1974)

Modern Portfolio theory and investment analysis, Elton Gruber 4th edition, (1991)

Capital investment and financial decisions, Haim Levy/ Marshall Sarnat 2nd edition (1982)

Business risk management, Bob Ritchie (1993)

Report of the Committee on the Financial Aspects of Corporate performance

Julia Finch and Jill Treanor “Guardian” 4th August, 2005:18

John A. Byrne “Business Week” Corporate performance 6TH May 2002:46-48

Robert J. Downs “Accountancy age” 19th march 1998:1-3

Kendal Timmons “Accountancy age” 23rd June 2000: 18-19

“Financial times” 17th August 2001:17-18

“Financial times” 21st June 2002:21-22  

“Financial times” 14th April 1995:19-23

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AccountancyAge.com, , 26 Oct 2006

http://www.compare-and-save.co.uk

http://news.bbc.co.uk/2/hi/business/1723136.stm

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