Higher College Of Technology Department Of Business S 765969

Higher College Of Technologydepartment Business Studiesfinal Examinat

This assignment encompasses comprehensive questions on portfolio management, investment analysis, and financial decision-making based on multiple case studies involving stock investments, valuation, risk analysis, and market strategies. Students are required to perform calculations related to share purchasing activities, present value, portfolio variance, standard deviation, and investment decision criteria like CAPM and Arbitrage Pricing Theory. The tasks involve analyzing real market data, calculating associated commissions and profits, evaluating securities based on risk and return, and applying theoretical models to practical scenarios. Students must ensure all work is original, properly formatted, and submitted within the stipulated deadline, following guidelines specified by the college.

Paper For Above instruction

The assignment focuses on fundamental and advanced concepts of portfolio management and investment analysis, requiring students to demonstrate their understanding through calculations, analysis, and evaluation based on the provided case studies.

Introduction

Portfolio management is a crucial aspect of financial investment strategies, involving the selection and management of a diversified portfolio of securities to optimize risk-adjusted returns. This paper aims to analyze multiple case studies involving individual and corporate investment activities, applying various financial models and calculations to assess investment viability, profitability, and risk. The case studies span stock market investments, valuation of securities, risk assessment, and strategic decision-making within different financial contexts in Oman and global markets.

Case Study 1: Stock Investment and Commission Calculations

The first case involves Dr. Sultan Ahmed Abdullah Al Hasni, who engaged in stock trading during a volatile period influenced by COVID-19. The primary task is to compute the total buying and selling activities, including commissions paid to Fidelity Investment & Research and the US Market (NASDAQ 100). The calculations involve determining the total transaction costs for Amazon, Microsoft, and Starbucks shares, considering both purchase and sale commissions. The formulas for calculating commissions are straightforward: the commission rate multiplied by the transaction value.

For Amazon, the purchase value is 400 shares x US$ 1828.34 = US$ 731,336.00, and the sale value is 400 shares x US$ 2283.32 = US$ 913,328.00. The commissions for buying and selling are calculated by applying rates of 0.0025 and 0.001 respectively, with additional US Market fees for transactions. Similar calculations are performed for Microsoft and Starbucks shares using their respective quantities and prices. These computations help understand the total expenditure and earnings on the trades, including the impact of commissions on overall profitability.

Further, the analysis extends to the total commissions paid by the US Market for all transactions, emphasizing the cost implications of active trading and the importance of efficient transaction costs management. Portfolio profit or loss is then calculated by subtracting the total cost of purchases from the total proceeds of sales, adjusting for commissions, providing a clear picture of the trader's net earnings or losses.

Case Study 2: Present Value of Investment in Stocks

This case addresses the valuation of stocks based on future selling prices, dividends, and required rates of return, using present value calculations. For Google, Yahoo, and Walmart, the future selling prices, dividend expectations, and investment horizon are specified, allowing for the use of the dividend discount model (DDM) and discounted cash flow (DCF) methods to determine the current stock worth.

For example, Google’s present value calculations involve discounting the expected sell price and dividends at the required rate of return, considering the time horizon of ten years. The formula applied is:

P₀ = (D₁ / (1 + r)¹) + ... + (Dₙ / (1 + r)ⁿ) + (Pₙ / (1 + r)ⁿ)

where P₀ is the present value, D₁...Dₙ are dividends, Pₙ is the expected selling price, and r is the required rate of return. Similar computations are made for Yahoo and Walmart, considering their specific data points. This analysis helps assess which stock offers the best investment opportunity based on present value metrics, risk-return trade-off, and future prospects.

Moreover, the comparison among the stocks enables investors to make informed decisions aligned with their risk appetite and expected returns, guiding optimal portfolio allocation.

Case Study 3: Variance and Standard Deviation of Securities

The third case involves calculating the variance and standard deviation of securities to evaluate their risk profiles. Using the given probability distributions, returns, and probabilities for different securities, the task involves applying statistical formulas:

  • Expected Return (E(R)) = Σ [Probability × Return]
  • Variance (σ²) = Σ [Probability × (Return - E(R))²]
  • Standard Deviation (σ) = √Variance

Calculations are performed for the securities of Maserati, BMW, Mercedes Benz, Lamborghini, Aston Martin, and Bentley based on their returns and associated probabilities. These measures provide insights into the risk (volatility) of each security, assisting the investor in selecting securities with optimal risk-return characteristics.

By analyzing these metrics, students identify the securities offering the best balance between risk and return, which is a fundamental aspect of portfolio diversification strategy.

Case Study 4: Investment Opportunities and Risk Assessment

This case explores different investment options including futures, options, bonds, and share trading, emphasizing the importance of understanding market structures and investment strategies. Students examine whether the investments proposed by Dr. Ahmed and other individuals are suitable for their risk appetite and investment horizons.

Discussion includes whether activities involve the equities market, bonds, or derivatives like futures and options, with considerations for procedures, risks, and benefits. Strategies for low-risk, high-return investments are also analyzed, highlighting importance of market research and risk management.

The case also covers the process of selling shares, the role of stock exchanges, and the legal procedures involved in securities trading within Oman’s market context. Risk management techniques such as diversification, hedging, and portfolio balancing are examined to ensure optimal decision-making.

Case Study 5: Asset Valuation and Investment Decision Models

Finally, the last case involves advanced valuation techniques including Arbitrage Pricing Theory (APT) and Capital Asset Pricing Model (CAPM) to evaluate commodities and securities for investment. Calculations include:

  • Application of APT: factoring in multiple macroeconomic variables and their sensitivities to measure expected returns.
  • Calculation of beta coefficients for stocks and deriving the expected return using CAPM: R = Rf + β(Rm - Rf).

For example, using provided beta values and risk-free rates, students determine the required market return and compare the stocks’ expected returns to identify the most profitable investment options.

These models serve as vital tools for modern portfolio theory and risk management, guiding investors in aligning their investments with market expectations and systematic risk factors.

Conclusion

This comprehensive analysis demonstrates the application of financial theories, valuation models, and statistical techniques in practical investment scenarios. Students learn to evaluate securities, calculate transaction costs, and assess risk-return trade-offs, critical for making informed investment decisions. Emphasizing accuracy, analytical skills, and adherence to guidelines ensures a thorough understanding of portfolio management principles within the context of Oman’s financial markets and beyond.

References

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