Financial Investment Issues - Research Paper Example

Report on Investment Portfolio Selected Companies The selected companies for the investment include: A-Cap Resource Limited (ACB): A company within the energy industry that is involved in the exploration of minerals in Botswana, China, and Australia Acacia Coal Limited (AJC): A company that is involved in exploration and development of coal under the energy industry. Acer Energy Limited (ACN): An energy firm that is involved in oil and gas exploration. Gale Pacific Ltd: A firm in the consumer durables and apparel industry that is aimed at designing and manufacturing advanced polymer products Melbourne IT Ltd (MLB): A firm within software and services industry aimed at supplying domain names, hosting, as well as other key products and services that are required by organizations in the digital economy. Telstra Corporation Ltd (TLS): A firm within telecommunications industry that provides telecommunications and information services including internet and mobiles Rio Tinto (RIO): A firm within materials industry that produces copper, gold, iron ore, coal, aluminium, titanium dioxide, borates and other minerals and metals McMillan Shakespeare (MMS): A firm within Commercial and Professional Services industry responsible for salary and packaging administration. Investments Portfolios Company Acquisition Shares Sale Date Prices of Shares Cost Profits Purchase Sales Cost Proceeds ACB 12/09/2012 20,000 05/10/2012 0.12 0.12 2,400 2,400 None AJC 20/08/2012 10,000 05/10/2012 0.02 0.02 200 200 None ACN 20/08/2012 10,000 05/10/2012 0.17 0.26 1,700 2,600 900 MLB 24/09/2012 13,000 05/10/2012 1.78 1.82 23,140 23,660 520 TLS 20/08/2012 2000 05/10/2012 3.70 3.95 7,400 7,900 500 GAP 26/09/2012 10,000 05/10/2012 0.25 0.27 2,500 2,700 200 RIO 29/08/2012 1000 05/10/2012 50.54 54.90 50,540 54,900 4,360 MMS 20/08/2012 1000 05/10/2012 12.00 12.63 12,000 12,630 630 TOTAL 67,000 99,880 106,990 7,110 Review of Each of the Company The above graph shows the changes in the prices of shares (purchasing and selling prices). The purchases and sales of the prices occurred between August 20, 2012 and October 5, 2012. Based on the above graph, it is clear that investment was made on both small and large firms. The rationale of investing in small and large firms is the risk factor. The investor in question believed that smaller firms are less risky compared to larger firms. It is always important to diversify portfolios in order to spread the idea of the risks. The following graphs provide the daily movements in share prices of each of the investment companies based on the acquisition price of your shares listed on the A.S.X. A-Cap Resources Limited (ACB) Rio Tinto Ltd (RIO) Acacia Coal Ltd (AJC) Gale Pacific Ltd (GAP) Acer Energy (ACN) Melbourne IT Ltd (MLB) Telstra Ltd (TLS) Millan Shakespeare (MMS) Beta Calculations Company Prices of Shares Differences in Prices Returns Purchase Sales ACB 0.12 0.12 0.00 0.0000 AJC 0.02 0.02 0.00 0.0000 ACN 0.17 0.26 0.09 0.5294 MLB 1.78 1.82 0.04 0.0224 TLS 3.70 3.95 0.25 0.6757 GAP 0.25 0.27 0.02 0.0800 RIO 50.54 54.90 4.36 0.0863 MMS 12.00 12.63 0.63 0.0525 Average 0.67375 0.1808 Variance of Returns = (Sum of Returns – Mean Returns) / 8 Variance of Returns = {(1.4463-0.1808) / 8}2 = 0.02503 Covariance of the Returns, Cov (R, M) = (0.67375 – 0.1808)/ 0.67375 = 0.7316 Therefore, Beta = Covarince / Variance = 1.06 Comparing with the 2011 beta or 1.08, the above beta of 1.06 seems to provide a good measure of how the stock movers relative to the broader Australian market index. The function of beta is to measure the risk of stock in relation to the overall market. From the above calculations, it is evident that the selected portfolios are less risky and have diversified the possible risks. On this basis, it is therefore true to say that the investor is likely to have very little loss and fear of risks associated with portfolios. The beta calculated from the investment portfolios is a clear indication of how the portfolio has diversified risks as well as low risk compared to the Australian Market index in 2011. Summary The financial investment was very successful providing additional profit or income of approximately $7,110. In addition to the income received from the portfolio, there is no doubt that the risks associated with the same are too low. For instance, the beta obtained for the overall portfolio clearly indicates that the selected investment portfolios have widespread risks besides being lower than the 2011 Australian Market index beta. When portfolios have spread risks as well as low risks then it is advisable to engage in the investment. The above case scenario is a good example of investment portfolio, which was not only of viable income in terms of increased revenue or income but also given the fact that there were low risks involved, which in any case were widely spread across different firms from different industries and sizes. Indeed, the investment portfolio was a successful one. Part A Displays evidence of reviewing the Annual Reports and share price data of selected companies. Demonstrates understanding of core material. 10 Successfully used and analysed Reports and share data to create excellent coherent responses; demonstrates a deep understanding of core concepts. 7 Used the Reports and share data to provide adequate responses demonstrating a sound understanding of concepts. 3 Provided responses that showed little evidence of understanding the Reports and/or share data, and limited comprehension as to concepts. 0 Does not show any evidence of understanding concepts or of reviewing the Reports and relevant share data. Part B Sound application of principles and practice including understanding of beta coefficient analysis. Organisation and Presentation 10 All measures for all companies were successfully calculated and organised and presented in an orderly manner. 7 Most measures were successfully calculated and well presented. 3 Very few measures were successfully calculated and presentation was of a poor standard. 0 No attempt was made to use the correct formulae. Part C Depth of research/analysis in regards collected material. 5 Incorporates a high degree of analysis and demonstrates excellence in utilising share data and other pertinent information. 3 Demonstrates adequate analysis and use of relevant data. 2 Demonstrates little analysis and use of relevant data. 0 No analysis or reference to relevant data. Marking Guide for Assignment BUSINESS FINANCE PG 6224 ASSESSMENT CRITERIA SHEET Comments: Read More