Modern portfolio theory

Paper Outline The objective of this paper is to understand the process of calculation of weighted average cost of capital(WACC), which is the core multiple used for discounting future cash flows of an entity and calculating the intrinsic value of the company’s stock. However, in this paper, we will solely focus on the calculation of WACC and its component, the costs of equity and cost of debt. In order to work with a pragmatic approach, we have selected Henkel AG, a German conglomerate active in

that are to be placed in a portfolio. Beta is more useful because beta will calculate if a stock is a commodity, a defensive stock, or if the stock will move with the economy. If the beta is over 1.5 the stock is a high risk stock. From completing a simple beta equation a person can diversify their portfolio to include a mixture of commodities, stocks which move with the economy, and defensive stocks. So in case of hard economic times a person with a diversified portfolio will not lose all their investments

benchmark performance or other portfolio with the same benchmark. Disadvantaged: Only useful as a sub-portfolio measure of a board or fully diversified portfolio. Jasen’s Alpha: measures the average return on portfolio over and above that predicted by CAPM. Limitation: An absolute measure does not adjusted for any risk. It is not able behave proportionally to the level of required return of portfolio. Information ratio: the information ratio divides the alpha of the portfolio by the nonsystematic risk

REITs with those of the overall market and six other REIT sectors using Jensen Index over the 1993–1999 period. The results show that while risk-adjusted return of hotel REITs was in line with that of the overall market, the hotel REIT sector as a portfolio underperformed office, industrial, and diversified REIT sector. Studies in Singapore and Malaysia Liow (1997) examined the historical performance of Singapore property share returns in 1975-1995 and found that the property

A. Portfolio; feasible set; efficient portfolio; efficient frontier A portfolio is a group of financial assets, differing in possible risk and return, and is managed by an investor or a group of professionals. Generally, a higher return expected by a portfolio owner generates a higher risk as well, and vice versa. The mix of financial assets can range, and these can include stocks, bonds, mutual funds, and cash equivalents. Stocks are considered the most volatile of these options and thus generate

was further divided into three 3-year periods for portfolio formation, portfolio beta estimation and testing period. The Nifty 50 stocks as last traded on 31st December, 2013 are

securities trading in the stock market has significantly increased. Since then, many studies have analysed the performance of managed portfolios and evaluated the way investors explain returns on stocks (Jagannathan and Wang, 1996). The most common theory used by managers and practitioners is known as the Capital Asset Pricing Model (CAPM). However, this theory has been criticised by some empirical models. This paper will critically analyse the relative merits of the CAPM and will discuss the Fama

During the interviews, it was understood that Portfolio Theory is difficult to apply to loaning administration. A bank is required to have a flexible credit evaluating process to capture the individuality of each loan. These differences depend on the size of the loan and the different clients’ risks. This makes it difficult to apply loan portfolio diversification compared to a portfolio of bonds or stocks. Nevertheless, more than the fixed principles banks seem to follow the intuition behind it not

Portfolio Activity Building on the themes discussed in the paper from this week, discuss the following issue from your own personal perspective. Draw on your own experience and knowledge. Put yourself in the shoes of both an employer and employee. Portfolio assignments should be about 500 - 750 words (1 - 1.5 pages) in length. Effective management is how to manage the organization and achieve its objective while maintaining the future plans and respecting the rights of all personnel members. Elements

sold. For example, typical stock commissions ranged from 1.5 to 2.5 percent depending on the size of the transaction. Bain’s clients’ portfolios included equities (both common and preferred) as well as fixed income securities and small amounts of cash (typically “parked” on a short term basis before being allocated to fixed income or equities). Typical portfolios were approximately 60% equities and 40% fixed income, 70% domestic and 30% international. Approximately one third of equity investments