Question

the table below represents the development of a portfolio of investment entered by Golden Joy Investment during the year 2019

name of the firm	Number of shares	January share price	December share price	dividend per share declared
GT bank	12000	10.00	10.00	0.00
prudential bank	1000	2.80	3.00	1.25
fan milk ltd	5000	2.00	1.50	0.00
unilever brothers	15000	1.00	2.00	0.20

a) As an investment management consultant how would you be able to determine the percentage return on each individual investment and Also give recommendation on the investment portfolio as a whole?

b) Using the table above, how would you advice Golden Joy investment about the significance of risk and return; as a major characteristic of investment?

Answer 1

Ans A)

Percentage Return of Each Stocks : ( December share price + dividend per share declared - January share price) / January share price

GT bank = ( 10+ 0 - 10) / 10 = 0%
prudential bank = ( 3 + 1.25 - 2.8 ) / 3 = 51.79%
fan milk ltd = ( 1.5 + 0 - 2) / 1.5 = - 25.00%
unilever brothers = ( 2+ 0.2 - 1) / 1 = 120.00%

Portfolio Return :

• Invested Value in Each Stock = Number of shares * January share price
• Total Initial Investment = Sum of Invested Value in Each Stock
• Total Value at December = Number of shares* ( December share price + Dividend)
• Portfolio Value = Sum of Total Value at December
• Portfolio Return = ( Portfolio Value - Total Initial Investment ) / Total Initial Investment  

Portfolio Return = 11.47% (Ans)

• Weightage of Each Investment = Invested Value of Each Stock / Total Initial Investment

If we calculate weightage of Each Stock Found GT Bank having maximum weightage of 81% in total portfolio. But return on GT banks share is 0%. Means the rest of the portfolio worked really better and gave return. Should recommend rebalancing of the portfolio as major invested share GT Bank did not gave any return in terms of price appreciation or Dividend also.

Ans B)

Major Recommendation :

• 81.00% Of share in a single stock which brings concentration risk if for any reason GT Bank gave negative return overall portfolio would perform worse.
• Portfolio Diversification based on Different Industry also requre. Out of 04 Stocks 02 of them are from financial institution and weightage 83%. So diversify also industry wise required to minimize risk of each industry.