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Graded Project

Securities and Investments

© PENN FOSTER, INC. 2017 PAGE 1Securities and Investments Graded Project

CONTENTS OVERVIEW 2

INSTRUCTIONS 2

GRADING CRITERIA 8

SUBMITTING YOUR PROJECT 11

© PENN FOSTER, INC. 2017 PAGE 2Securities and Investments Graded Project

SECURITIES AND INVESTMENTS

OBJECTIVE Demonstrate the ability to perform investments calculations and analysis related to the concepts covered in this course.

PURPOSE The purpose of this graded project is to give you the opportunity to use the skills you’ve learned throughout this course in a series of real-world applications. The three parts of this project require you to analyze portfolios containing a number of securities using a variety of analysis tools. The skills you’ll demonstrate in this graded project are essential to becoming a successful financial manager.

Record your answers in a Word document with the question numbers clearly labeled. Show your calculations or calculator inputs when indicated for full credit. Perform all work using equations and a calculator. Do not submit or use an Excel spreadsheet to calculate your answers.

Part 1: Sector Performance Investment managers strive to outperform both the sector they focus on and broad mar- ket indexes such as the S&P 500. The performance of a portfolio is determined by both the weightings given to different types of investments as well as the actual performance of these investments. In addition, the level of risk an investor is willing to take on will impact the design of a portfolio.

To answer the questions in Part 1, you’ll use the information provided about the port- folio in the table below. The portfolio is broken out by sectors and shows the investor’s portfolio’s weighting and performance and the S&P 500’s weighting and performance in each sector. The final column shows the individual investments’ overall contributions to the portfolio. Note that an investment can underperform the S&P and still have a positive contribution to the portfolio based on the difference in weighting.

© PENN FOSTER, INC. 2017 PAGE 3Securities and Investments Graded Project

Portfolio Information

Sector (1) Portfolio Weighting

(2) S&P Weighting

(3) Differences in Weighting

(4) Portfolio Return

(5) S&P Return

(6) Sector Over- or Under- Performance

(7) = (3) x (6) Sector Allocation Contributions

Telecom- munications Services

3.10% 5.90% a. ? 2.50% 3.10% k. ? u. ?

Utilities 7.50% 3.80% b. ? 3.10% 1.90% l. ? v. ?

Information Technology 14.30% 17.90% c. ? 4.90% 3.20% m. ? w. ?

Materials 6.30% 3.70% d. ? 4.80% 5.10% n. ? x. ?

Financials 13.40% 17.10% e. ? 6.20% 4.80% o. ? y. ?

Consumer Discretionary 12.70% 13.50% f. ? 2.10% 4.00% p. ? z. ?

Industrials 14.10% 11.90% g. ? 4.90% 3.10% q. ? aa. ?

Energy 8.40% 8.00% h. ? 3.70% 8.60% r. ? bb. ?

Healthcare 15.30% 11.70% i. ? 9.80% 5.70% s. ? cc. ?

Consumer Staples 4.90% 6.50% j. ? 1.50% 13.20% t. ? dd. ?

© PENN FOSTER, INC. 2017 PAGE 4Securities and Investments Graded Project

1. Fill in the missing values in the table above for a quarterly comparison of sectors with the S&P 500 Index. Remember when performing calculations that the num- bers shown are percentage values. Record your answers as percentage values to two decimal places.

2. Did the performance turned in by the investment manager underperform or outperform the S&P 500? By how much? Show your work.

3. Which sector turned in the greatest positive contribution to the portfolio’s perfor- mance? Explain why this investment made the greatest positive contribution based on the differences in weighting and the sector over- or under- performance.

4. Which sector made the greatest negative contribution to the portfolio’s perfor- mance? Explain why this investment made the greatest negative contribution based on the differences in weighting and the sector over- or under- performance.

Part 2: Portfolio Analysis Use the three portfolios shown below to answer questions 5–8 in Part 2.

k. _______ l. _______ m. _______ n. _______ o. _______ p. _______ q. _______ r. _______ s. _______ t. _______

a. _______ b. _______ c. _______ d. _______ e. _______ f. _______ g. _______ h. _______ i. _______ j. _______

u. _______ v. _______ w. _______ x. _______ y. _______ z. _______ aa. _______ bb. _______ cc. _______ dd. _______

Portfolio 1

Security Amount Invested Expected Return Beta

Security A $ 4,000 9% .80

Security B $ 5,000 12% 1.15

Security C $ 12,000 14% .95

Security D $ 8,000 15% 1.23

© PENN FOSTER, INC. 2017 PAGE 5Securities and Investments Graded Project

5. Based on beta, which portfolio has the highest level of systematic risk? Show your work.

6. If the risk-free rate is 5.5 percent, which of these portfolios has the highest reward-to-risk ratio? Show your work.

7. Suppose that the risk-free rate is 5.5 percent, the return over a three-year period for each portfolio matches its expected return, and the portfolios have 3-year annual return standard deviations as follows:

Portfolio 1 22%

Portfolio 2 26%

Portfolio 3 18%

Portfolio 2

Security Amount Invested Expected Return Beta

Security A $ 3,000 16% 1.22

Security B $ 11,000 13% 1.54

Security C $ 9,000 8% .87

Security D $ 6,000 11% .81

Portfolio 3

Security Amount Invested Expected Return Beta

Security A $15,000 10% 1.72

Security B $12,000 9% .81

Security C $ 3,000 12% .72

Security D $ 2,000 15% 1.54

© PENN FOSTER, INC. 2017 PAGE 6Securities and Investments Graded Project

If you were restricted to selecting one of the three portfolios to invest all your money in, which should you choose based on that portfolio having the best ratio of excess return per unit of total risk as measured by its Sharpe ratio?

8. Suppose that the actual returns for Portfolios 1, 2, and 3 were as follows:

Portfolio 1 11.3

Portfolio 2 12.5

Portfolio 3 9.4

Also assume that the risk-free rate was 5.5 percent and the average return on the market portfolio was 8 percent.

a. Which of the three portfolios has the highest Jensen’s alpha? Show your work.

b. Which has the highest Treynor ratio? Show your work.

Part 3: Selecting a Portfolio Use the two portfolios shown in the tables below to answer the questions in Part 3.

Portfolio 1

Asset Category Percentage of Portfolio

U.S. small-company stocks 5

U.S. large-company stocks 10

International stocks 5

U.S. government bonds 50

U.S. corporate bonds 30

© PENN FOSTER, INC. 2017 PAGE 7Securities and Investments Graded Project

9. In your role as a financial advisor, you’re advising a client, Sally, a 30-year old com- puter programmer who makes an above-average salary. She’s investing money in her 401(k) that she doesn’t plan to use until retirement. In your opinion, which of the two portfolios above would be most appropriate for these funds? In your answer, explain why you believe the portfolio you’ve chosen is appropriate and explain why the portfolio you didn’t choose is not appropriate.

10. In your role as a financial advisor, you’re advising a client, Bob, who has just retired and rolled over his 401(k) into a self-directed IRA account. Bob intends to use these funds to provide income to live on in his retirement. In your opinion, which of the two portfolios above would be most appropriate for these funds? In your answer, explain why you believe the portfolio you’ve chosen is appropriate and explain why the port- folio you didn’t choose is not appropriate.

Portfolio 2

Asset Category Percentage of Portfolio

U.S. small-company stocks 20

U.S. large-company stocks 30

International stocks 25

U.S. government bonds 15

U.S. corporate bonds 10

© PENN FOSTER, INC. 2017 PAGE 8Securities and Investments Graded Project

SCORING GUIDELINES Your project will be graded according to the criteria found in the rubric below.

Rubric

Securities and Investments Graded Project

Skill/ Grading Criteria

Excellent Good Satisfactory Poor Grader Comments

Part 1

Question 1 All answers are correct.

30

Many of the answers are

correct.

29

Some of the answers are

correct.

28–26

Few or none of the answers are

correct.

25–0

Question 2

The answer and expla- nation are

correct and calculations are shown.

5

The answer is correct

but the explanation or calcula- tions are incorrect.

4

The answer is correct,

but the calculations

or explanation is not shown.

3

The answer is incorrect,

and the explanation and calcula- tions are not

shown.

2–0

Question 3

The answer and expla- nation are correct.

5

The answer is correct,

but the explanation is incorrect.

4

The answer is correct,

but the expla- nation is not

shown.

3

The answer is incorrect and/or the explana-

tion is not shown.

2–0

(continued)

© PENN FOSTER, INC. 2017 PAGE 9Securities and Investments Graded Project

Question 4

The answer and expla- nation are correct.

5

The answer is correct,

but the explanation is incorrect.

4

The answer is correct,

but the expla- nation is not

shown.

3

The answer is incorrect and/or the explana-

tion is not shown.

2–0

Part 2

Question 5

The answer is correct and the

correct cal- culations

are shown.

10

The answer is correct

and the cal- culations are incorrect, or the answer is incorrect but the cal-

culations are correct.

9

The answer is correct, but the calcula- tions are not

shown.

8–7

The answer is incorrect and/or the

calculations are not shown.

6–0

Question 6

The answer is correct and the

correct cal- culations

are shown.

10

The answer is correct

and the cal- culations are incorrect, or the answer is incorrect but the cal-

culations are correct.

9

The answer is correct, but the calcula- tions are not

shown.

8–7

The answer is incorrect and/or the

calculations are not shown.

6–0

Question 7

The answer is correct and the

correct cal- culations

are shown.

5

The answer is correct

and the cal- culations are incorrect, or the answer is incorrect but the cal-

culations are correct.

4

The answer is correct, but the calcula- tions are not

shown.

3

The answer is incorrect and/or the

calculations are not shown.

2–0

(continued)

© PENN FOSTER, INC. 2017 PAGE 10Securities and Investments Graded Project

Question 8

The answer is correct and the

correct cal- culations

are shown.

10

The answer is correct

and the cal- culations are incorrect, or the answer is incorrect but the cal-

culations are correct.

9

The answer is correct, but the calcula- tions are not

shown.

8–7

The answer is incorrect and/or the

calculations are not shown.

6–0

Part 3

Question 9

The answer and explana- tion are both

correct

10

The answer is correct

but the explanation is incorrect.

9

The answer is correct but the explanation is incomplete or

not shown.

8–7

The answer is incorrect and/or the

explanation is not shown

6–0

Question 10

The answer and explana- tion are both

correct

10

The answer is correct

but the explanation is incorrect.

9

The answer is correct but the explanation is incomplete or

not shown.

8–7

The answer is incorrect and/or the

explanation is not shown

6–0

© PENN FOSTER, INC. 2017 PAGE 11Securities and Investments Graded Project

SUBMITTING YOUR PROJECT Each project is individually graded by your instructor and therefore takes up to a few weeks to grade.

Be sure the following information is in the heading of each document:

n Your name

n Project number (081612)

n Your student number

n Course name and number

n Your email address

To submit your graded project, follow these steps:

1. Go to http://www.pennfoster.edu.

2. Log in to your student portal and click on Take an Exam.

3. Click on Submit.

4. In the box provided, enter the examination number. The number for this exam is 081612.

5. On the next screen, enter your email address. (Note: This information is required for online submission.)

6. If you wish to tell your instructor anything specific regarding this assignment, enter it in the Comments.

7. Attach your file or files as follows:

a. Click on the first Browse box. b. Locate the file you wish to attach. c. Double-click on the file. d. To attach the additional files, click on the next Browse box and repeat steps b

and c. Repeat until all files are uploaded. 8. Click on Submit.

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