Portfolio

1478 Words Aug 7th, 2015 6 Pages
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ALEX SHARPE'S PORTFOLIO

op yo Professor Colette Southam wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality.

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RISK AND RETURN

op yo R.J. Reynolds Tobacco Company (RJR) was the second-largest tobacco firm in the world, with a share of approximately 30 per cent of the U.S. cigarette market. R.J. Reynolds was a wholly owned subsidiary of
Reynolds American Inc. (NYSE: RAI). The company faced some unique challenges; for example, most consumer-product companies did not have to spend millions of dollars annually on advertising aimed at discouraging use of their product for consumers under the age of 18. R.J. Reynolds had been subject to significant litigation for many decades, but the company had a strong track record in defending tobaccorelated cases in court and assured its shareholders that it would continue to take appropriate steps to maintain a successful litigation record.

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The last five years’ worth of monthly returns for the Vanguard 500 Index Fund, Hasbro and R.J. Reynolds are provided in Exhibit 1. In addition to comparing the returns on the individual components of her portfolio, Sharpe also wanted to fully compare the risk profiles of the two companies to that of the
Vanguard Fund. She wanted to ensure that the expected return of her new portfolio would provide adequate compensation for taking on any new risky assets.

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