Question

PART A: Company Research

Using Fiji Television Limited answer the following questions.

You have been selected as an Investment Consultant by company that you have selected and the Chief Investment Officer wants you to assist him in analyzing the company’s Investment portfolios.

1) Explain the nature of the company and identify stakeholders of this company.

2) Advise the Chief Investment Officer if the company is subject to any unsystematic risk.

3) Based on the current share price, do you think this company has performed well over the past three (3) years? Why?

Answer 1

1ANS : A stakeholder is a party that has an interest in a company and can either affect or be affected by the business. The primary stakeholders in a typical corporation are its investors, employees, customers, and suppliers.

Identify Your Stakeholders

Start by brainstorming who your stakeholders are. As part of this, think of all the people who are affected by your work, who have influence or power over it, or have an interest in its successful or unsuccessful conclusion.

four types of stakeholders :

A narrow mapping of a company's stakeholders might identify the following stakeholders:

• Employees.
• Communities.
• Shareholders.
• Creditors.
• Investors.
• Government.
• Customers.

2 ANS :

Systematic Risk

Systematic risk is risk associated with market returns. This is risk that can be attributed to broad factors. It is risk to your investment portfolio that cannot be attributed to the specific risk of individual investments.

Sources of systematic risk could be macroeconomic factors such as inflation, changes in interest rates, fluctuations in currencies, recessions, wars, etc. Macro factors which influence the direction and volatility of the entire market would be systematic risk. An individual company cannot control systematic risk.

Unsystematic Risk

Unsystematic risk is company specific or industry specific risk. This is risk attributable or specific to the individual investment or small group of investments. It is uncorrelated with stock market returns. Other names used to describe unsystematic risk are specific risk, diversifiable risk, idiosyncratic risk, and residual risk.

Examples of risk that might be specific to individual companies or industries are business risk, financing risk, credit risk, product risk, legal risk, liquidity risk, political risk, operational risk, etc. Unsystematic risks are considered governable by the company or industry.

Proper diversification can nearly eliminate unsystematic risk. If an investor owns just one stock or bond and something negative happens to that company the investor suffers great harm. But if an investor owns a diversified portfolio of 20, 30, or 40 individual investments, the damage done to the portfolio is minimized.

The important concept of unsystematic risk is that it is not correlated to market risk and can be nearly eliminated by diversification.

3 ANS :Evaluating stock performance is very individual to each investor. Just as every person has different appetites for risk, plans for diversification, and investing strategies, so too does every investor have different standards for evaluating stock performance. One investor may expect an average annual return of 10% or more, while another may look to add to his portfolio with a stock that is not correlated with the stock market as a whole.A stock’s performance needs to be placed in the right context to understand it properly. On the surface, it looks great to see that a stock has returned 20% since the beginning of the year when viewing the starting price versus the ending price, but you need to look a little deeper. Was the stock abnormally depressed on the first day? If so, it could throw the numbers off.