Professional Documents
Culture Documents
University of Dhaka
Course Name: Portfolio Management
Course code: F-407
A report
on
Constructing an efficient frontier and ratio
analysis.
Page | 1
Submitted To
Md. Sajib Hossain
Lecturer,
Department of Finance
University of Dhaka
Submitted By
Prasenjit Roy
ID: 17-153, Section-A
Department of Finance
University of Dhaka.
Page | 2
Letter of
December 29, 2014
MD. Sajib Hossan
Lecturer,
Department of Finance
University of Dhaka
Subject: Letter regarding Submission of report on Constructing an efficient frontier and
ratio analysis.
Dear Sir,
With due respect I would like to inform that I have prepared a report on Constructing an
efficient frontier and ratio analysis. On 15 listed company. I have tried my best to prepare
the report in consistence with the optimal standard under your valuable direction.
I would be very grateful if you kindly accept this report. I tried heart and soul to make this
report as a complete one. It would be pleasure for me if this report can serve its purpose.
Respectfully
Prasenjit Roy
Roll: 17-153, Section: A.
BBA (17th Batch)
Department of Finance
University of Dhaka
Page | 3
Executive Summary
It is very important for an investor to analyze different aspects of the
investment whether it is profitable or not. The investor can take
investment decision only after analyzing all aspects of the investment.
Then these types of decision can give a positive result. So it is needless to
say that proper analysis plays a vital role for any investment decision.
Financial statement analysis is a critical vehicle that furnishes investors
with most reliable estimates of investments worth. Financial statements,
periodically published by publicly listed company, are a source of most
valuable information of a company that facilitates investors to do
valuation of security properly.
In this report, we tried to evaluate stock of fifteen companies to decide
optimum investment amount to be allocated in each companys stock to
achieve expected return. Portfolio is the combination of investments. The
creation of an optimum investment portfolio is not simply a matter of
combining numerous securities to deal with risk and return but factors
also. Using inside information constructing an efficient portfolio is also
important factor here. I have tried to create a portfolio on the basis of the
market price data and the dividend adjustments.
I have selected fifteen companies from fifth different industries. Portfolio
has been constructed considering different objectives of an efficient
portfolio.
Solver function gives different combination of securities with higher
return, less variance, and the maximum theta value.
So, consuming little bit higher risk, theta can be maximized. If investment
is performed on the different securities considering optimum weight,
highest return can be achieved and wealth of investor can be maximized.
Page | 4
TABLE OF CONTENT
Sl. No.
Topic
Page No.
Methodology
Industry Analysis:
6
7
Theta
maximization
without short sale
with&
10
11
Return
maximization
short sale
12
13
Efficient frontier
14
Conclusion
with
without
& without
Page | 5
Methodology:
The types of methods used in this report are mainly of analytical &
graphical in nature. Secondary data analysis was selected as the basic
research method.
Secondary Data Collection: Certain data for this report has been extracted from
secondary sources.
Limitations:
Page | 6
There are not enough data for economy and industry analysis.
There are not available industry data, so I cant find industry
correlation.
DSE indexes do not reflect market properly.
Efficient Portfolio
Our main objective in this report is to find the efficient portfolio with a
portfolio of 10 securities which are of A category listed in DSE before
2008. We are working on Monthly data.
Page | 7
Sl. No.
Company Name
Sl. No.
Company Name
01
Square pharms
09
Pubali Bank
02
The.Ibn.Sina
10
Square Textile
03
11
04
Bangladesh Lamps
12
Apex Food
05
Golden Son
13
Atlas Bangladesh
06
Singer Bangladesh
14
Eastern Cable
07
BD. COM
15
Dhaka Bank
08
IDLC Investment
Page | 8
Page | 9
Industry Analysis
Textile Industry: Our textile industry has high potentiality. We know that
Bangladesh earns the largest portion of foreign currency from RMG. Recently
this potentiality has increased radically due to global financial crisis. As
income of the people of developed countries has fallen in remarkable
number, their living standard also has fallen. And now they are trying to save
money minimizing cost. As a result, the demand for Bangladeshi textile
based low priced cloths is increasing worldwide. Specially, the demand has
increased largely in the market of USA. So, we can conclude by saying that
Textile Industry is now one of the potential industries in our country
Engineering: This sector is very emerging for our economy. This industry
is facing strong competition because foreign companies are considering this
market more profitable. The competition among the existing companies is
low because the demand of the products of this industry is very high. The
threat of substitute products is very low. The bargaining power of the buyers
is high and the bargaining power of the suppliers is very high.
Food & Allied Products: This sector is very emerging for our country.
The demand of the products of this industry is increasing day by day with the
increase of the population. The threat of new entrants is very high. The
competition among the existing companies is medium. Bargaining power of
the suppliers is very low and the bargaining power of the buyers is very high.
Page | 10
Cash Dividend:
The profit that is paid to the equity holders in the form of cash is called cash
dividend. It is adjusted at the time of calculating the dividend yield.
For example, Dividend Yield = February Dividend/ January stock price.
Stock Dividend:
The profit that is paid to the equity holders in the form of stock is called
stock dividend. It is adjusted at the time of calculating the capital gain.
For example, Capital Gain = (Feb. stock price*(1+Feb.stock dividend)*Jan. Stock price)/Jan. stock price
Stock Split:
When stock price is divided into smaller unit it is called stock split. It is
adjusted at the time of calculating the capital gain.
Page | 11
Page | 12
Page | 13
Page | 15
IF all the company have equal weight, then the portfolio return is 29.73% And Portfolio
risk is 9.63%.
Page | 16
Page | 17
The short sale proportion will be- Apex Food =74% Dutch Bangla Bank
=55%,
The following chart shows the proportion of the investment and short sale in
the individual assets of the portfolio.
Investment and short sale proportion of the individual assets of the portfolio when Theta is maximized with short
sale.
Efficient Frontier Of Maximize Theta With Short Sales.
Page | 19
Page | 20
The following table shows the proportion of the investment and short sale in
the individual assets of the portfolio. And portfolio return & risk and other
return.
Page | 22
Efficient Frontier
Subsets of the portfolios that will be preferred by all investors who will
exhibit risk avoidance and who prefer more return to loss. This set is usually
called the efficient set or efficient frontier.
Page | 23
Conclusion
In this report I tried to make real life use of portfolio construction
procedure and discern the optimum portfolio which will serve my utility as
well as investment objective. In my analysis i have used secondary data to
make the analysis. I used 5 years data from 2009 to 2013 collected from DSE
data archive
Based on the above analysis we can see that each of constructed portfolio
under 6 constrains has its own risk return portfolio. From these results, I
found Portfolio where maximize theta with short sell has highest risk return
combination and portfolio where minimum risk with short sell has lowest risk
return combination. I used solver tool of Microsoft excel which made the
study more accurate and informative. It will help to take decision easily
about weighting my investment fund into different assets.
Bibliography
Page | 24
www.bsec.bd.com
Modern Portfolio Theory and Investment Analysis(8th edition)-By: Gruber
Analysis of Investments and Management of Portfolio(10th edition)-By: Reilly
Brown
Page | 25
Page | 26