Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 26, 2024

CASE STUDY: Emaar Properties PJSC: Investment Risk Emaar Properties is a real estate development company located in the United Arab Emirates (UAE). It was founded

CASE STUDY: Emaar Properties PJSC: Investment Risk

Emaar Properties is a real estate development company located in the United Arab Emirates (UAE). It was founded and incorporated in 1997 by chairman Mohamed Alabbar. It is a public joint-stock company, listed on the Dubai Financial Market in 2000, and has a valuation of US$9.7 billion as of June 2018. The company operates internationally providing property development and management services. With six business segments and 60 active companies, Emaar has collective presence in 36 markets across the Middle East, North Africa, Pan-Asia, Europe and North America. Emaar Properties Dubai is one of the largest real estate developers in the UAE and is known for various large-scale projects such as developing Burj Khalifa, the tallest building in the world. In-line with growing risk in the world economy, Emaar has diversified interests in real estate including both commercial and residential property development, as well as malls and hospitality. Examples of Emmar diversified local and international projects are: Emaar Properties, Emaar International, Emaar Hospitality, Emaar Malls, Emaar Hotels & Resorts, Emaar Retail, Burj Khalifa, Emaar Community Management, Emaar Technologies, Emaar Industries and Investments, Amlak Finance, Emaar Investment Holdings, Hamptons International

Assume that you recently graduated with MBA in finance, and you just landed a job as a financial analyst with Emaar-Dubai.Your first assignment is to invest AED 10,000,000 based on your own investment selection.Because the funds are to be invested in a business at the end of one year, you have been instructed to plan for a one-year holding period.Further, your boss Ahmed Azizy has restricted you to the following investment alternatives, shown with their probabilities and associated outcomes.

Table 1: Returns on Alternative Investments: Estimated Rates of Returns

State of the

Probability

Dubai-Bonds

Emaar

Amlak

Hamptons

Market Portfolio

2-stock Portfolio

DFM Index

Recession

0.1

4.0%

-25.0%

28.0%

10.0%*

-13.0%

-10.0%

Below average

0.2

4.0

-4.0

14.7

-10.0

1.0

-6.0%

Average

0.4

4.0

20.0

0.0

7.0

15.0

10.0

12.0%

Above average

0.2

4.0

30.0

-10.0

45.0

29.0

15.0%

Boom

0.1

4.0

40.0

-20.0

30.0

43.0

15.0

20.0%

Beta (?)

0.0

1.0

*Note that the estimated returns of Hamptons International do not always move in the same direction as the overall economy.For example, when the economy is below average, consumers purchase fewer mattresses than they would if the economy was stronger.However, if the economy is in a flat-out recession, a large number of consumers who were planning to purchase a more expensive inner spring mattress may purchase, instead, a cheaper foam mattress.Under these circumstances, we would expect Hampton's stock price to be higher if there is a recession than if the economy was just below average.

Mr. Najeeb's economic forecasting staff has developed probability estimates for the state of the economy, and its security analysts have developed a sophisticated computer program, which was used to estimate the rate of return on each alternative under each state of the economy.Emmar is a real estate developer; Amlak is a finance company that provides finance when banks are not accessible; and Hamptons International is a premier international real estate company in Dubai offering an extensive portfolio of properties in the UAE and internationally.Mr. Najeeb also maintains an "index fund" which owns a market-weighted fraction of all publicly traded stocks in Dubai Financial Market (DFM); you can invest in that fund, and thus obtain average stock market results.The average expected return of DFM is 10% and the standard deviation (?) is 9% with a 1.0 beta (?).

The project manager, Mr. Naser Al Meri noticed that profits are growing over the last 5 years. Therefore, he had embarked upon an expansion project, which had the potential of increasing sales by about 10% per year over the next 3 years in the worst case, 20% in the normal, and 30% in the best case scenario. The additional capital needed to finance the project had been estimated at AED 350m. He asked you about whether financing the project by fixed rate debt or issue common stocks to raise the needed fund. The board of directors held a meeting to discuss the issue of finance but they were equally divided in their opinion of which financing route should be chosen. As a graduate with MBA from Ajman University, you have to prove your worth to Emaar by suggesting a solution to this dilemma. Your suggestions may be around either: Homemade leverage or creating different scenarios around look before leverage. It is a good opportunity to make use of the financial information provided in Table 2 (Income Statement), Table 3 (Balance Sheet), and Table 4 (Key Ratios).

Emaar Case: Part One Questions:

1.Why is the Dubai Bond's return independent of the state of the economy? Do Dubai Bonds promise a completely risk-free return?

2.Why are Emaar's returns expected to move with the economy whereas Amlak's are expected to move counter to the economy?

3.Calculate the expected rate of return on each alternative and fill in the blanks on the row for (?) in the table above.

4.You should recognize that basing a decision solely on expected returns is only appropriate for risk neutral individuals.Since your client, like virtually everyone, is risk averse, the riskiness of each alternative is an important aspect of the decision.One possible measure of risk is the standard deviation of returns. Calculate the expected return and estimate the risk value for each alternative.

5.Suppose you suddenly remembered that the coefficient of variation (CV) is generally regarded as being a better measure of stand-alone risk than the standard deviation when the alternatives being considered have widely differing expected returns.Calculate the missing CVs.Does the CV produce the same risk rankings as the standard deviation?

6.Suppose you created a 2-stock portfolio by investing AED 10,000,000 in Emaar and AED 8,000,000 in Amlak. Calculate the expected return (?_p), the standard deviation (?_p), and the coefficient of variation (CV_p) for this portfolio.

7.Suppose an investor starts with a portfolio consisting of one randomly selected stock.What would happen (1) to the riskiness and (2) to the expected return of the portfolio as more and more randomly selected stocks were added to the portfolio?What is the implication for investors?

8.Should portfolio effects influence the way investors think about the riskiness of individual stocks?

9.If you decided to hold a 1-stock portfolio, and consequently were exposed to more risk than diversified investors, could you expect to be compensated for all of your risk; that is, could you earn a risk premium on that part of your risk that you could have eliminated by diversifying?

10.How is market risk measured for individual securities? How are beta coefficients calculated?

Part Two Questions:

1.Provide comprehensive analysis on the capital structure of Emaar over the last 5 years and explain its impact on performance of the company.

2.Explain the reasons behind the decline in the free cash flow.

3.Based on the 5-years balance sheets and cash flow statements, comment on the dividend policy of Emaar.

4.If Emaar plans to keep the same rate of growth, what the optimal mechanism of raising fund for its new investments?

5.How do you compare Emaar with other competitors on the bases of:

EPS,

Capital structure and risk of debt,

Ability to raise internal finance, and

Dividend policy.

Appendix

Table 2: Emaar Properties PJSC | Ratios - Key Metrics |

Ratios - Key Metrics

Column1

Industry Median

2018

2017

2016

2015

2014

Earnings Quality Score

Profitability

Gross Margin

42.6%

54%

55%

58%

60%

EBITDA Margin

27.5%

39%

40%

47%

Operating Margin

26.4%

32%

33%

34%

31%

35%

Pretax Margin

29.8%

35%

39%

33%

37%

Effective Tax Rate

23.7%

-1%

Net Margin

22.6%

35%

39%

34%

37%

DuPont/Earning Power

Asset Turnover

0.19

0.23

0.18

0.14

x Pretax Margin

29.8%

35%

39%

33%

37%

Pretax ROA

5.5%

x Leverage (Assets/Equity)

2.92

2.32

2.37

2.44

2.09

2.25

Pretax ROE

18.5%

19%

15%

16%

13%

11%

x Tax Complement

0.73

68%

84%

89%

90%

89%

ROE

13.8%

13%

14%

12%

10%

x Earnings Retention

0.67

82%

100%

80%

74%

67%

Reinvestment Rate

10.2%

11%

13%

11%

Liquidity

Quick Ratio

0.60

Current Ratio

1.31

Times Interest Earned

6.5

Cash Cycle (Days)

658.1

141.6

104.4

86.2

18.3

50.1

Leverage

Assets/Equity

2.92

2.32

2.37

2.44

2.09

2.25

Debt/Equity

0.72

0.44

0.45

0.44

0.35

0.37

% LT Debt to Total Capital

21.3%

0.241

0.252

0.275

0.235

0.242

(Total Debt - Cash) / EBITDA

4.14

0.6

0.04

Operating

A/R Turnover

2.6

2.2

3.5

4.2

7.3

Avg. A/R Days

141.8

167.3

104.4

86.2

92.1

50.1

Inv Turnover

0.5

53.5

Avg. Inventory Days

811.1

6.8

Avg. A/P Days

135.0

32.5

73.9

Fixed Asset Turnover

12.87

2.35

1.82

1.67

1.56

1.22

WC / Sales Growth

1.1%

Bad Debt Allowance (% of A/R)

1.4%

0.01

0.019

0.027

0.05

ROIC

0.127

0.098

0.107

0.096

0.083

Table 3: Emaar Properties PJSC | Income Statement |

Income Statement

Annual Standardized in Millions of U.A.E. Dirhams

Column1

Column2

Column3

Column4

Column5

2018

2017

2016

2015

2014

Earnings Quality Score

Period End Date

31-Dec-2018

31-Dec-2017

31-Dec-2016

31-Dec-2015

31-Dec-2014

Revenue

25,694

18,752

15,540

13,661

9,930

Net Sales

25,694

18,752

15,540

13,661

9,930

Other Revenue, Total

Total Revenue

25,694

18,752

15,540

13,661

9,930

Cost of Revenue, Total

11,867

8,478

6,577

5,405

3,989

Cost of Revenue

11,867

8,478

6,577

5,405

3,989

Gross Profit

13,827

10,274

8,963

8,256

5,941

Selling/General/Admin. Expenses, Total

4,021

3,131

2,066

1,695

594

Selling/General/Administrative Expense

3,135

2,422

1,417

1,075

Labor & Related Expense

886

709

648

621

533

Research & Development

Depreciation/Amortization

689

642

601

599

580

Depreciation

689

642

601

599

580

Interest Expense, Net - Operating

Interest/Investment Income - Operating

512

411

353

302

276

Investment Income - Operating

512

411

353

302

276

Interest Expense(Income) - Net Operating

Interest Exp.(Inc.),Net-Operating, Total

512

411

353

302

276

Unusual Expense (Income)

396

301

Impairment-Assets Held for Use

301

Impairment-Assets Held for Sale

396

Other Operating Expenses, Total

(128)

(117)

640

1,115

1,005

Other Operating Expense

305

278

965

1,435

1,308

Other, Net

(433)

(395)

(325)

(321)

(303)

Total Operating Expense

17,357

12,545

10,238

9,417

6,473

Operating Income

8,337

6,207

5,302

4,243

3,457

Interest Expense, Net Non-Operating

Interest/Invest Income - Non-Operating

(364)

(338)

(27)

144

(118)

Interest Income - Non-Operating

290

261

272

432

478

Investment Income - Non-Operating

(654)

(599)

(299)

(289)

(596)

Interest Income(Exp), Net Non-Operating

Interest Inc.(Exp.),Net-Non-Op., Total

(364)

(338)

(27)

144

(118)

Gain (Loss) on Sale of Assets

Other, Net

1,035

746

806

149

356

Other Non-Operating Income (Expense)

1,035

746

806

149

356

Net Income Before Taxes

9,009

6,616

6,081

4,535

3,694

Provision for Income Taxes

(11)

(54)

Net Income After Taxes

9,020

6,548

6,002

4,589

3,686

Minority Interest

(2,912)

(975)

(583)

(507)

(393)

Net Income

6,108

5,572

5,419

4,082

3,293

Basic Weighted Average Shares

7,160

6,923

Basic EPS Excluding Extraordinary Items

0.85

0.78

0.76

0.57

0.48

DPS - Common Stock Primary Issue

0.15

Table 4: Balance Sheet

Annual Standardised in Millions of U.A.E. Dirhams

Column1

Column2

Column3

Column4

Column5

Column6

Earnings Quality Score

Period End Date

31-Dec-2018

31-Dec-2017

31-Dec-2016

31-Dec-2015

31-Dec-2014

Assets (AED Millions)

Cash and Short Term Investments

9,494

21,103

17,289

17,919

16,018

Cash

7,895

8,457

7,889

7,127

Cash & Equivalents

1,599

12,646

17,289

10,030

8,891

Accounts Receivable - Trade, Net

7,474

2,922

2,615

2,684

1,152

Accounts Receivable - Trade, Gross

7,605

3,025

2,746

1,236

Provision for Doubtful Accounts

(157)

(152)

(129)

(109)

Total Receivables, Net

15,402

8,083

2,615

4,705

2,172

Receivables - Other

7,928

5,161

2,021

1,020

Total Inventory

201

242

Inventories - Other

201

242

Prepaid Expenses

4,662

4,409

8,048

2,543

2,308

Other Current Assets, Total

Property/Plant/Equipment, Total - Gross

15,678

12,705

11,183

Buildings - Gross

386

390

432

Land/Improvements - Gross

7,628

6,729

6,511

Machinery/Equipment - Gross

2,132

1,846

1,756

Construction in Progress - Gross

3,407

1,901

613

Other Property/Plant/Equipment - Gross

2,125

1,838

1,873

Property/Plant/Equipment, Total - Net

10,648

11,237

9,331

9,333

8,214

Accumulated Depreciation, Total

(4,440)

(3,372)

(2,970)

Goodwill, Net

411

Intangibles, Net

616

216

Intangibles - Gross

220

Accumulated Intangible Amortization

(4)

Long Term Investments

65,090

60,028

53,740

41,805

42,463

LT Investment - Affiliate Companies

4,701

4,724

4,610

6,697

5,591

LT Investments - Other

60,388

55,304

49,130

35,108

36,872

Note Receivable - Long Term

987

727

154

3,022

2,920

Other Long Term Assets, Total

4,195

7,020

6,033

Deferred Charges

873

916

Defered Income Tax - Long Term Asset

178

138

Discontinued Operations - LT Asset

3,144

5,967

6,033

Other Assets, Total

123

161

Other Assets

123

161

Total Assets

111,419

113,637

97,256

79,557

74,179

Liabilities (AED Millions)

Accounts Payable

1,337

773

1,023

1,159

Payable/Accrued

5,141

3,478

11,046

2,403

1,881

Accrued Expenses

5,623

4,687

4,099

3,627

Notes Payable/Short Term Debt

Current Port. of LT Debt/Capital Leases

2,191

2,146

325

730

Other Current liabilities, Total

18,843

22,073

19,615

16,697

19,364

Dividends Payable

291

295

300

1,605

Customer Advances

13,588

17,884

18,723

14,072

15,482

Income Taxes Payable

119

Other Payables

4,845

3,802

892

2,270

2,261

Total Long Term Debt

18,719

19,422

17,350

12,949

11,622

Long Term Debt

18,719

19,422

17,350

12,949

11,622

Total Debt

20,910

21,568

17,350

13,274

12,351

Deferred Income Tax

1,874

2,080

Deferred Income Tax - LT Liability

1,874

2,080

Minority Interest

8,749

7,737

5,954

3,807

2,620

Other Liabilities, Total

903

3,350

3,462

136

134

Reserves

163

149

136

134

Discontinued Operations - Liabilities

723

3,169

3,313

Other Liabilities

Total Liabilities

63,380

65,747

57,427

41,442

41,169

Shareholders Equity (AED Millions)

Redeemable Preferred Stock, Total

Preferred Stock - Non Redeemable, Net

Common Stock, Total

7,160

Common Stock

7,160

Additional Paid-In Capital

578

Retained Earnings (Accumulated Deficit)

45,183

44,411

36,552

33,595

28,380

Treasury Stock - Common

ESOP Debt Guarantee

Unrealized Gain (Loss)

(1,358)

(1,151)

(1,127)

(1,163)

(935)

Other Equity, Total

(3,523)

(3,107)

(3,334)

(2,056)

(1,595)

Translation Adjustment

(3,523)

(3,117)

(3,319)

(2,033)

(1,592)

Other Equity

Other Comprehensive Income

(15)

(23)

(3)

Total Equity

48,040

47,890

39,829

38,114

33,011

Total Liabilities & Shareholders' Equity

111,419

113,637

97,256

79,557

74,179

Total Common Shares Outstanding

7,160

Table 5: Emaar Properties PJSC | Cash Flow |

Cash Flow

Annual Standardised in Millions of U.A.E. Dirhams

2018

2017

2016

2015

2014

Earnings Quality Score

Period End Date

31-Dec-2018

31-Dec-2017

31-Dec-2016

31-Dec-2015

31-Dec-2014

Cash Flow-Operating Activities (AED Millions)

Net Income/Starting Line

9,008.7

6,615.9

6,080.5

4,535.3

3,694.2

Depreciation/Depletion

689.0

641.5

601.5

901.0

855.3

Depreciation

689.0

641.5

601.5

901.0

855.3

Amortization

11.6

4.4

0.0

Amortization of Intangibles

11.6

4.4

0.0

Deferred Taxes

Non-Cash Items

707.4

463.3

49.6

204.6

229.7

Unusual Items

8.9

5.7

12.2

298.9

1.4

Equity in Net Earnings (Loss)

(49.7)

(134.8)

(299.6)

(188.8)

87.5

Other Non-Cash Items

748.2

592.4

337.0

94.5

140.8

Changes in Working Capital

(9,978.5)

(5,158.4)

(4,246.9)

(28.0)

3,051.1

Accounts Receivable

(4,592.4)

(247.3)

97.9

(870.1)

(579.2)

Other Assets

(5,485.8)

(6,804.9)

(2,552.1)

(1,075.4)

(2,378.7)

Accounts Payable

3,428.5

2,813.4

(1,256.4)

430.8

289.4

Taxes Payable

(27.3)

(11.6)

25.3

1.8

1.1

Other Liabilities

(4,296.8)

(845.1)

(561.6)

1,484.9

5,718.6

Other Assets & Liabilities, Net

995.3

(62.9)

0.0

Cash from Operating Activities

438.3

2,566.8

2,484.7

5,613.0

7,830.3

Cash Flow-Investing Activities (AED Millions)

Capital Expenditures

(2,642.0)

(1,947.2)

(1,206.7)

(1,272.3)

(754.7)

Purchase of Fixed Assets

(2,641.0)

(1,947.2)

(1,206.7)

(1,272.3)

(754.7)

Purchase/Acquisition of Intangibles

(1.0)

0.0

Other Investing Cash Flow Items, Total

1,136.1

4,771.4

(1,556.5)

(2,084.3)

3,274.0

Acquisition of Business

0.0

(555.4)

0.0

Sale of Business

0.0

132.2

13.5

5,800.0

Sale of Fixed Assets

48.6

77.4

29.9

7.7

4.9

Sale/Maturity of Investment

2,218.3

1,839.6

438.8

21.3

1,845.4

Investment, Net

867.3

5,370.6

(1,196.1)

(1,535.9)

(4,441.6)

Purchase of Investments

(3,001.2)

(2,863.5)

(1,490.3)

(936.6)

(394.3)

Other Investing Cash Flow

1,003.1

770.6

647.8

359.2

459.6

Cash from Investing Activities

(1,505.9)

2,824.2

(2,763.2)

(3,356.6)

2,519.3

Cash Flow-Financing Activities (AED Millions)

Financing Cash Flow Items

(957.9)

(868.3)

(790.7)

471.8

(604.7)

Other Financing Cash Flow

(957.9)

(868.3)

(790.7)

471.8

(604.7)

Total Cash Dividends Paid

(4,545.0)

(1,494.0)

(1,397.9)

(2,378.3)

(8,497.4)

Cash Dividends Paid - Common

(4,545.0)

(1,494.0)

(1,397.9)

(2,378.3)

(8,497.4)

Issuance (Retirement) of Stock, Net

Issuance (Retirement) of Debt, Net

(678.6)

4,251.3

3,104.8

908.1

2,397.3

Long Term Debt Issued

5,238.5

6,435.6

5,872.0

1,588.4

7,934.2

Long Term Debt Reduction

(5,917.0)

(2,184.3)

(2,767.2)

(680.3)

(5,529.5)

Long Term Debt, Net

(678.6)

4,251.3

3,104.8

908.1

2,397.3

Cash from Financing Activities

(6,181.4)

1,889.1

916.2

(998.4)

(6,704.8)

Foreign Exchange Effects

(29.2)

(0.3)

(558.5)

(46.8)

(12.9)

Net Change in Cash

(7,278.2)

7,279.8

79.3

1,211.1

3,631.9

Net Cash - Beginning Balance

16,240.9

8,961.1

8,881.8

7,670.8

4,038.9

Net Cash - Ending Balance

8,962.7

16,240.9

8,961.1

8,881.8

7,670.8

Cash Interest Paid

945.9

834.9

759.1

438.1

604.7

Free Cash Flow

(2,203.7)

619.6

1,278.0

4,340.7

7,075.5

Table 6: Competitors Data

Name

Last Price

Est. PE

EPS

Ccy

DPS

Ccy

Div. Yld (%)

ROE (%)

P/Book

P/Sales

Mcap

Emaar Properties PJSC

4.74 c

5.56

5.18

0.85

AED

0.15

AED

3.14

12.73

0.71

1.32

33,937,162,301

Sector average (Mean)

50.07

9.89

0.20

AED

0.06

AED

1.69

9.48

0.76

6.54

6,562,685,798

Sector median

8.98

5.69

0.08

AED

0.00

AED

0.00

3.89

0.45

3.01

1,355,494,682

Emaar Properties PJSC

4.74 c

5.56

5.18

0.85

AED

0.15

AED

3.14

12.73

0.71

1.32

33,937,162,301

Aldar Properties PJSC

2.12 c

8.98

7.82

0.24

AED

0.14

AED

6.51

7.88

0.69

2.65

16,904,653,646

Emaar Development PJSC

4.15 c

4.26

4.52

0.98

AED

0.26

AED

6.33

59.89

2.09

1.08

16,600,000,000

Wahat Al Zaweya Investment & Real Estate Development LLC

2.43 c

13.90

0.17

AED

0.02

AED

0.93

21.40

2.25

4.89

5,619,931,553

Damac Properties Dubai Co PJSC

0.896 c

4.71

16.82

0.19

AED

0.00

AED

0.00

8.24

0.38

0.88

5,420,800,000

Deyaar Development PJSC

0.335 c

13.81

33.80

0.02

AED

0.00

AED

0.00

2.96

0.43

3.01

1,935,630,000

Union Properties PJSC

0.316 c

21.75

10.53

0.01

AED

0.00

AED

0.00

2.16

0.44

2.71

1,355,494,682

Manazel Real Estate PJSC

0.403 c

4.54

4.60

0.09

AED

7.92

0.36

1.29

1,076,400,000

Eshraq Investments PJSC

0.403 c

310.00

0.00

AED

0.00

AED

0.00

0.21

0.65

36.04

953,250,000

RAK Properties PJSC

0.448 c

5.95

5.69

0.08

AED

0.00

AED

0.00

3.89

0.23

8.84

910,000,000

Al Ramz Corporation Investment and Development PJSC

0.958 c

157.31

0.01

AED

0.69

1.11

5.46

526,819,392

Sharjah Group Company PSC

0.89 c

-0.10

AED

0.00

AED

0.00

-4.75

0.45

5.35

70,221,967

Dana Group International Investments Ltd

0.3 c

0.05

0.00

AED

-0.01

0.02

11.47

4,551,830

CASE STUDY: EMAAR PROPERTIES CASE STUDY: EMAAR PROPERTIES Emaar Case: Part One Questions: Part Two Questions: 1. Why is the Dubai Bond's return independent of the state of the economy? Do Dubai Bonds 1. Provide comprehensive analysis on the capital structure of Emaar over the last 5 years promise a completely risk-free retum? and explain its impact on performance of the company. 2 Why are Emaar's returns expected to move with the economy whereas Amlak's are L. Explain the reasons behind the decline in the free cash flow. expected to move counter to the economy? . Based on the 5-years balance sheets and cash flow statements, comment on the 3. Calculate the expected rate of return on each alternative and fill in the blanks on the row dividend policy of Emaar. for (R) in the table above. 4. If Emaar plans to keep the same rate of growth, what the optimal mechanism of raising You should recognize that basing a decision solely on expected returns is only appropriate fund for its new investments? for risk neutral individuals. Since your client, like virtually everyone, is risk averse, the 5. How do you compare Emaar with other competitors on the bases of riskiness of each alternative is an important aspect of the decision. One possible measure EPS. of risk is the standard deviation of returns. Calculate the expected return and estimate the Capital structure and risk of debt, risk value for each alternative. Ability to raise internal finance, and Suppose you suddenly remembered that the coefficient of variation (CV) is generally . Dividend policy. regarded as being a better measure of stand-alone risk than the standard deviation when the alternatives being considered have widely differing expected returns. Calculate the missing CVs. Does the CV produce the same risk rankings as the standard deviation? 6. Suppose you created a 2-stock portfolio by investing AED 10,000,000 in Emaar and AED 8,000,000 in Amlak Calculate the expected return (R.), the standard deviation (q,), and CASE STUDY: EMAAR PROPERTIES the coefficient of variation (CM) for this portfolio. Suppose an investor starts with a portfolio consisting of one randomly selected stock. What CASE STUDY: Emaar Properties PJSC: Investment Risk would happen (1) to the riskiness and (2) to the expected return of the portfolio as more Emaar Properties is a real estate development company located in the United Arab Emirates and more randomly selected stocks were added to the portfolio? What is the implication (UAE). It was founded and incorporated in 1997 by chairman Mohamed Alakbar, It is a public for investors? joint-stock company, listed on the Dubai Financial Market in 2000, and has a valuation of US $9.7 8 Should portfolio effects influence the way investors think about the riskiness of individual billion as of June 2018. The company operates internationally providing property development stocks? and management services. With six business segments and 60 active companies, Emaar has . If you decided to hold a 1-stock portfolio, and consequently were exposed to more risk collective presence in 36 markets across the Middle East, North Africa, Pan-Asia, Europe and than diversified investors, could you expect to be compensated for all of your risk; that is, North America. Emaar Properties Dubai is one of the largest real estate developers in the UAE and could you earn a risk premium on that part of your risk that you could have eliminated by is known for various large-scale projects such as developing Burj Khalifa, the tallest building in diversifying? he world. In-line with growing risk in the world economy, Emaar has diversified interests in real 10. How is market risk measured for individual securities? How are beta coefficients estate including both commercial and residential property development, as well as malls and calculated? hospitality. Examples of Enumar diversified local and international projects are: Emaar Properties, Emaar International, Emaar Hospitality, Emaar Malls, Emaar Hotels & Resorts, Emaar Retail, Burj Khalifa, Emaar Community Management, Emaar Technologies, Emaar Industries and Investments, Amlak Finance, Emaar Investment Holdings, Hamptons International Assume that you recently graduated with MBA in finance, and you just landed a job as a financial analyst with Emaar-Dubai. Your first assignment is to invest AED 10,000,000 based on your own investment selection. Because the funds are to be invested in a business at the end of one year, you have been instructed to plan for a one-year holding period. Further, your boss Ahmed Azizx has restricted you to the following investment alternatives, shown with their probabilities and associated outcomes Table 1: Returns on Alternative Investments: Estimated Rates of Returns State of the Probability |Dubai- |Hamptons Market 2-stock DFM Bonds Fortfolio Portfolio Index Recession 0.1 4.0% -25.0% 25.0% 10.0% -13.0% 3% -10.0% Below average 02 4.0 -4.0 -10. 120 -6.0% Averag 10.4 4.0 20.0 0.0 15.0 10.0 12.0% Above average 02 4.0 30.0 -10.0 45.0 29.0 15.0% Boom 40.0 -20.0 43.0 15.0 20.0% Beta (F) 10 "Note that the estimated returns of Hamptons International do not always move in the same direction as the overall economy. For example, when the economy is below average, consumers