Reference no: EM132622642
Portfolio adjustment:
After a successful tenure at central budgeting division, it's now time to spend some time with Portfolio management division. One of the main tasks of this division is to invest surplus fund in a small portfolio of equity shares. The team of financial analysts of the portfolio management division usually advising the ABC plc whether is a good time to buy, sell, or hold certain shares of their portfolio. During your time in this division, you were asked to help the Financial analyst team to evaluate the portfolio and provide your opinion.
The CAPM is one method that may employed by analysts to help them reach their conclusions. The current market return is 12 per cent and the rate earned on Treasury bills is 5 per cent. Details of the portfolio hold by the ABC plc are as follows:
Company No. shares Beta Share price (£) Dividend yield (%) Expected Return (%)
Flower 70,000 1.27 3.75 5.6 13.0
Garden 150,000 1.53 4.25 3.5 21.0
House 200,000 1.01 2.50 4.2 19.0
Ice cream 80,000 0.95 4.50 6.2 10.5
Jungle 130,000 1.89 3.50 4.8 15.5
a) Comment on risk of ABC Plc's portfolio compared with the risk of the market portfolio with the support of appropriate calculations included in appendix.
b) Advice with rational on how ABC Plc should change the composition of its portfolio with the support of appropriate calculations included in appendix.