6 Pages
1593 Words
Introduction To Financial Insights And Business Intelligence
Evaluate the average rate of return
Figure 1: Average rate of return
![Average rate of return]( "Average rate of return")
(Source: Created by learner)
The average rate of return is a process that can be used to determine the financial position of the organization. This table shows that the average rate of return for GM stock is 18.54% and also the average rate of return for Ford stock is 18.90%.
Rate of return (ROR) on the comparisons of 40% and 60% for GM stock and Ford stock
Figure 2: ROR
![ROR]( "ROR")
(Source: Created by learner)
The average return of the portfolio during the period from 2003 to 2007
| The initial stage of the securities has been taken on 40% each |
60% of the Ford stock |
| In this case, portfolio return and risk have been showcased |
| Year |
GM stock |
Value |
Ford stock |
Value |
the total value of the weighted return |
| 2003 |
(-10%*0.40) |
-0.04 |
(-3%*0.60) |
-0.018 |
-5.80% |
| 2004 |
(18.50%*0.40) |
0.074 |
(21.29%*0.60) |
0.128 |
20.17% |
| 2005 |
(36.87%*0.40) |
0.15 |
(44.25%*0.60) |
0.27 |
41.30% |
| 2006 |
(14.33%*0.40) |
0.057 |
(3.67%*0.60) |
0.02 |
7.93% |
| 2007 |
(33% * 0.400 |
0.132 |
(28.30% *0.60) |
0.17 |
30.18% |
| average rate of return of the portfolio |
Total of the weighted return / total number of the years |
0.187572 |
| rate of return of the portfolio |
19.92% |
Table 1: Average return
(Source: Created by learner)
This table describes the average rate of return of the portfolio and also the rate of return of the portfolio. This table shows that the value of the average rate of return of the portfolio is 0.18757 and also value of the rate of return of the portfolio is 19.92%.
Estimates the risk of each stock
GM stock
Calculating the risk for both of the common stocks
Figure 3: Risk for both stocks
![Risk for both stocks]( "Risk for both stocks")
(Source: Created by learner)
| The total Risk of a stock is computed by using the standard deviations of the stock GM |
| using standard deviations for identifying the GM stock value |
SQRT (SUM /n-1) |
0.1871 |
| Individual risk factors of the stock of GM |
18.71% |
Table 2: Total risk
(Source: Created by learner)
Individual risk factors for the stock of Gm are 18.71% also describes \ the total value of the square of the differentiate is 0.14.
| Year |
Ford Common stock showcased value |
GM stock return - average return (18.90%) |
Square of the differentiate |
| 2003 |
-3 |
-21.9 |
0.05 |
| 2004 |
21.29% |
2.39% |
0.00 |
| 2005 |
44.25% |
25.35% |
0.06 |
| 2006 |
3.67% |
-15.23% |
0.02 |
| 2007 |
28.30% |
9.40% |
0.01 |
| the total value of the square of the differentiate |
0.14 |
Table 3: Value of stock return
(Source: Created by learner)
| The total risk of a stock is computed by using the standard deviations of the stock FORD |
| Using the standard deviations of the Ford stock value |
SQRT / total value of the square of the differentiate/ n- 1) |
0.1902629759 |
| Individual risk factors of the Ford stock |
19.03% |
Table 4: Risk of stock return
(Source: Created by learner)
As well as individual risk factors of the Ford stock are 19.03% and also the total value of value of the square of the differentiate is same is 0.14.
Calculations of the Risk for the Assets Portfolio
| Calculation of portfolio risk at the stage of 40% |
evaluations of factors |
| Portfolio risk |
SQRT (0.4*0.1871) ^2+(0.4*0.1903) ^2+2*0.4*0.4*0.9031*0.1871*0.1903 |
| Portfolio risk |
9.09% |
| Calculations of the portfolio risk at the stage of 60% |
Evaluations of factors |
| Portfolio risk |
SQRT (0.6*0.1871) ^2+(0.6*0.1903) ^2+2*0.6*0.6*0.9031*0.1871*0.1903 |
| Portfolio risk |
14.84% |
Table 4: Risk of asset portfolio
(Source: Created by learner)
This table describes the portfolio risk at the stage of 40% as 9.09% and also for portfolio risk at the stage of 60% is described as 14.84%.
Evaluate the coefficient correlation between returns of common stocks (Two)
| GM |
Ford |
| coming Returns |
18.54% |
18.90% |
| Standard deviations |
18.71% |
19.03% |
| GM Stock value |
FORD stock value |
RP |
standard deviations |
| Weighted value |
0 |
1 |
18.9 |
19.03 |
| 0.1 |
0.9 |
18.8811 |
18.85873 |
| 0.2 |
0.8 |
18.8622 |
18.87776 |
| 0.3 |
0.7 |
18.8433 |
18.89679 |
| 0.4 |
0.6 |
18.8244 |
18.91582 |
| 0.5 |
0.5 |
18.8055 |
18.93485 |
| 0.6 |
0.4 |
18.7866 |
18.95388 |
| 0.7 |
0.3 |
18.7677 |
18.89679 |
| 0.8 |
0.2 |
18.7488 |
18.87776 |
| 0.9 |
0.1 |
18.7299 |
18.85873 |
| 1 |
0 |
18.711 |
18.8397 |
Table 5: Correlation
(Source: Created by learner)
Figure 4: Standard deviation
![Standard deviation]( "Standard deviation")
(Source: Created by learner)
In this above evidence, this has been included that the graphical pentagons showcased the most attractive and beneficial opportunity of the investments. In this case, the opportunity built has been used by 40% and 60% shares, respectively. In this segment, the portfolio return is 19.92% Portfolio risk has been worked for 14.84%. In this consideration, this combination of the two stated stocks is presented as the value of portfolio and risk factors.
Evaluating Modern Portfolio Theory
The Modern Portfolio Theory is useful in the age of the investment and analysis of the risk engagement practice. The selected business can deliver the details about the business and projections of the business evaluations of the investment chosen. In the selected theory it has been assumed that the clones are actually risk averse (Dimmock et al. 2023). The selected theory can deliver the options to the investors to the less risky options to manage their business evaluations. In simple words, this theory is helpful due to its nature of providing low-risk investments but in practicality, it is not good that investors always take low risks, where the high risk provides high returns.
Providing recommendations accordingly in layman's terms on the profitability
In the above considerations the recommendations under using the layman's term profitability on the measures of using the Portfolio market and evaluations the risk factors of different stocks have been clarified the stage of investing. Investors of the markets try to invest in risk-free segments of the market and use the portfolio management for investing which determines the investors can invest in risk-free agents. In this case, layman's theory discusses the diversification of their market investing which helps them to reduce the risk of the investing (Van der Niet, 2021). This theory is more effective in the market and helps investors gain profitability in their investing strategies.
References
- Dimmock, S.G., Wang, N. and Yang, J., 2023. The endowment model and modern portfolio theory. Management Science.
- Van der Niet, B.M., 2021. Evaluating the effect of fair value adjustments to investment property on profitability ratios (Doctoral dissertation, North-West University (South Africa)).
