Financial Modelling - Assignment Example

FINANCIAL MODELING and Question One In the list of portfolios, there is a portfolio that works outall the others in terms of delivery at the end of the project. Let’s take for example; the portfolio A, which has the expected return of 25% and a standard deviation of 84%, will get a big blow due to the high deviation rate from its competitor portfolios. Due to the high range of return the margin can be reduced to lower rates that would not be a big blow to the organization. Portfolio F can do well if all the conditions in the organization are kept constant.

Risk is a component used in the business environment to give the entrepreneurs an inner energy to perform by taking risks from what they hope can give some recognized profit. It is concerned with making decisions involving the business future. When a risk is made the expected return may either be positive or negative. Therefore when we base our argument on the fact of risk we base it in a manner that we expect results based on probability that the results might be good or bad. Hence the expectations are the returns that arise through the process of taking risks.

Risk in all fields of business is expected because it might lead to growth of the organization or lead to attainment of high profit margins leading to increased revenue allocation in the organization. Question two The portfolio F seems to have low combined risks that will lead to high returns. With minimized risks in an organization the organization can give high and very excellent results that will lead to major development in an organization. This will enhance improved infrastructure in the organization which will lead to diversification in the organization.

An organization that will have very low risks can have high profits and can be able to maneuver through the business world that is very competitive. Risks can be minimized through diversification of the organization goals. Production of many and diverse products will increase the market share of the organization and the customers in the organization become more leading to increment of profits in the organization. Customers are also diversified by the organization through the introduction of more goods that will be made available under the same roof.

Ana organization that offers many different types of goods and services makes more profit than an organization that markets only one type of goods. More customers are prevalent in organization where they can get more goods under the same roof than getting goods from different areas. This helps them save time and gives the organization more fame increasing the profit margins of the organization. portfolio Expected return Standard deviation Correlation matrix F 12 % 31% 0.30 1.00 A 25 % 84% 1 Introduction of Risk-Free Aversion Death star is introduced to the market an asset that is risk free.

This has a tax rate of 10 % and every part of it is cheap and its warranty time is 15 (fifteen) years. This asset will give a profit margin that is very high of about $450,000 within a year when purchased to come into the portfolio and its job is to clear away enemies associated with technology. This will be sold at the age if 7 (seven) years at the value of $450,000 when it has performed all its services to the clients. This will be a very effective asset to have in an organization because it has no expenses and it will give some amount in terms of profit at the end of its time and it will help boost the economy of the organization.

It also motivates the workers in the organization giving them the morale to pursue their daily chores in the organization leading to the improvement in the organization revenue allocation (Christy 2013). When risks of working are lessened the organization is not prevalent to undergo any loss hence this motivates the organization management to give more tries and venture in other businesses which leads to more diversification in the organization (Teall 2013). Introduction of Risk Aversion Factor Old model technology instruments are very similar in the risk aversion factors.

No customer can go for old model machines while there are new and efficient machines which have replaced the outdated machine of the nineteenth century. One will always prefer the new machines in any work that is undertaken that deals with technology (Madura 2005). When stocking any roof in any organization one should go for the quality items that are in the market and that please the customer for the stock not to stay but finish due to the high demand. The old outdated technological instruments stocked in any market under display do not attract customers but chases them leading to poor sales in the organization (Lumby and Jones 2007).

This will leave the organization optimal complete portfolio as low as possible leading to poor performance in the organization. This will lead to collapse of the organization leading to lack of motivation of the shareholders hence the organizational goals and plans will not be met. This will lead to lack of jobs to the employees of the organization and a total loss to the shareholders of the organization. The complete portfolio is the organizations working cash that when not reached successfully will lead to poor administration hence poor and very unfruitful plans (Schmidt 2006).

Conclusion In any of the organizations there should be good plans and on the plans there should be options of risk and diversification. The diversification process improves many organizations by increasing the profit margins of the organization. This leads to growth and expansion of the organization that makes the workers in the organization to get motivated and fulfill their organizational chores in a better and elaborate manner. Risk taking in any organization is very important in such a manner that it can bring results that can uplift the organization or make the organization collapse.

If the risk taken is positive the organization will improve in terms of profit margins leading to growth and expansion of the organization. Bibliography David A. Schmidt D.S. 2006. Analyzing Political Risk. Business horizons, Chicago. Jeff Madura J.M 2005. Financial Markets and Institutions. Thomson South-Western, California, USA. John Christy J.S 2013. Understanding and Managing Political Risk. http://internationalinvest.about.com/od/globalmarkets101/a/countryresearch.htm John Teall J.T 2013. Financial Trading and Investing.

Academic Press, Elsevier, USA. Medium-term note 2013. Retrieved from http://www.investorwords.com/12206/medium_term_note.html Stephen Lumby S.L and Chris M. Jones C.J 2007. Corporate Finance: Theory and Practice, Seventh edition. Thomson learning, London.