Investment Portfolio Management

Price earnings ratio is a valuation ratio of a company's current share price compared to its per-share earnings. Coca-Cola has a lower P/E ratio than Pepsi Co. The industry average for P/E ratio is 21.1. This means neither of the companies beat the industry average ratio. Between the

Yield to maturity (YTM) reflects the return required and set by the market on the assumption that the bond is held to maturity. In equilibrium, it is also the return that investors can expect to earn over the life of the bond. Holding Period Return (HPR) is the expected return over a future period, and is not based on the assumption that the bond is held to maturity. SIMILARITIES    Both expressed as annualised returns (not effective rates) Use the settlement price as cost base Total returns accounting for both the coupon interest component and the capital gain/loss component

Definition: In an active portfolio strategy, a manager uses financial and economic indicators along with various other tools to forecast the market and achieve higher gains than a buy-and-hold (passive) portfolio.

Portfolio and project management are similar and sometimes thought of as being one another. Between the project and portfolio management the goals and the intended strategic action is similar. The process between the portfolio management includes and involves the resources that list a process, which includes the evaluation, selection, and prioritization. Portfolio management and strategic management assist with the organizations missions and goals. These lay out the objective in the continuous planning and monitoring that assist with reaching the goals.

UNIVERSITY OF ILLINOIS AT CHICAGO Liautaud Graduate School of Business Department of Finance Professor Hsiu-lang Chen 1 Practice Problem I

1.High Color Detergent is issuing new shares of stock which will trade on NASDAQ. If Sue purchases 300 of these shares, the trade will occur in which one of the following markets? Primary 2. Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets? Secondary 3.Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n): initial public offering4. A firm that specializes in arranging financing for companies is called a(n): investment banking firm5.The process of purchasing newly issued shares from the issuer and reselling those shares to the general public is

In March 1995, Fred Aldrich, a summer trainee with the First Investments, Inc., was called into the office of the head of investment analysis section of the trust department. The following conversation took place: Fred, here are the 1994, 1993, and 1985 Basic Industries Company’s financials (Exhibit 1) and a 10-year summary (Exhibit 2 ). Our trust department has owned this stock since the early 1980s. As you know, our portfolio people place a lot of emphasis on the quality of a company’s earnings and the return on owners’ equity in making stock selections. Well, they are worried. The 1994 Basic Industries annual report shows a

The Price-Earnings Ratio, or P/E Ratio, is the ratio that measures a company’s current share price with their earnings per share. This ratio is typically measured over the previous four quarters, or 1 full calendar year. MSI has a P/E Ratio of 26.24. This means that for every dollar of earnings, people are willing to pay 26.24 dollars. The industry average is 18.77 and the S&P 500 is 23.62. Motorola Solutions has a higher P/E ratio than both of those so they are doing well on that front.

From September 3rd, 2015 to October 28th, 2015, our group was given the opportunity to manage an investment portfolio, with the goal of maximizing the value of the portfolio through acquiring, holding, and selling stock. The beginning cash balance of the portfolio was $100,000, and our group had the ability to make up to 500 trades. During this time period, our group made 20 stock purchases and sold stock twice. At the close of business on October 28, 2015, the value of our group’s portfolio increased from $100,000 to $106,785.33, yielding a return of  6.78% (((106785.33/100,000)-1) x 100)). In comparison to the S&P 500 returned at 7.16% and the Dow Jones having a return of 8.65% (Yahoo).

According to the CAPM model:R_i=α+βR_m+ε, α represent the abnormal return gained by the portfolio. If the market is efficiency, the α has to be zero.

It istaking the company’s stock price and comparing it to its earnings, cash flow, or book value (Nishi &Doering, 2000).

In March 1995, Fred Aldrich, a summer trainee with the First Investments, Inc., was called into the office of the head of investment analysis section of the trust department. The following conversation took place: Fred, here are the 1994, 1993, and 1985 Basic Industries Company’s financials (Exhibit 1) and a 10-year summary (Exhibit 2 ). Our trust department has owned this stock since the early 1980s. As you know, our portfolio people place a lot of emphasis on the quality of a company’s earnings and the return on owners’ equity in making stock selections. Well, they are worried. The 1994 Basic Industries annual report

To compute EPS, take net income and subtract dividends and divide this number the number of common stock shares outstanding. The effective yield is used to determine a common stock equivalent. To determine common stock equivalency, 2/3 of the prevailing corporate Aa bond must be greater than the effective yield. According to Lola Woodard Dudley, “It is hardly surprising that the effective e yield test correlates poorly with conversation, for the test is based on arbitrary assumptions and contains rules unrelated to economic activity” (Dudley, 1985, p. 106). The Aa bonds involve very little risk, and if a company has a large amount of risk then when they do the 2/3 computation, their effective yield will be higher than this number. Therefore, their securities will not meet the test of being common stock equivalent.

The Earnings Yield (the reciprocal of the P/E Ratio) can be used to easily compare the earnings of stock or the whole market against bond yields. It is the relationship between the company’s share price and earnings per share. Generally, the Earnings Yields of

Investors are particularly interested in a company’s profitability. One way of measuring a company’s performance is to look at their profitability with their reported EPS. Since EPS can be used as a tool (Little, 2015) for comparing profitability, ‘between different entities in the same reporting period and between different reporting periods for the same entity’ (IFRS, 2015).