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MANAGEMENT
TYPES
A group of investments when
combined together makes zero net
ZERO value. Such portfolio can be
INVESTMENT created by simultaneously
PORTFOLIO purchasing and selling the
securities.
PORFOLIO MANAGEMENT
ACTIVE
•Active portfolio management focuses on outperforming the
market compared to a specific benchmark.
• It aims to beat the market
PASSIVE
•Passive portfolio management aims to mimic the investment
holdings of a particular index.
• It is based on efficient market hypothesis.
• It focuses on decreasing cost which it does by buy and hold strategy
whiich entails low portfolio turnover.
• It aims to replicate the market.
OBJECTIVES
ELEMENT
S OF
RISK
SYSTEMATI UNSYSTEMATI
C RISK C RISK
FORMULA:
EXAMPLE
One year ago, the stock price for stock A was Rs. 10
per share. The stock is currently trading at Rs. 9.50 per
share and shareholders just received a Re. 1 dividend.
What return was earned over the past year?
R= 5 %
EXPECTED RATE OF RETURN
• It is calculated by taking the average of theprobabilitydistribution of all possibl
e returns.
• It is based on historical data and is not a guarantee.
• It is a tool to determine whether an investment has a positive or a negative
average outcome.
• The amount one would anticipate receiving on an investment that has various
known or expected rates of return.
EXAMPLE:
A portfolio has two shares X and Y:
X: 100 stocks @ Rs. 500
Y: 300 stocks @ Rs. 300
Expected return from X = 15%
Expected return from y = 12%
RETURN CALCULATION FOR SINGLE STOCK
(MULTIPLE PERIOD)
EXAMPLE: An investor has investment Rs. 100 in a stock that trade at Rs. 160
after 5 years. Calculate Annual growth rate.
COMPOUNDED ANNUAL GROWTH
• Example:
PORTFOLIO RETURN : 2 ASSET CASE
• EXAMPLE:
Mr. Mark has an opportunity of investing his wealth in either X or Y. The table
shows the following:
Now, if Mr. Mark decides to invest 50% of his wealth in X and 50% of his
wealth in Y. What would be the expected return on portfolio?
Calculate the
Multiply each
combined
This can be done combined
outcome under
in two ways: outcome by its
each state of
probablity
economic mind
ASSET ALLOCATION STRATEGY