Investment Management

Portfolio Management Project

You have inherited $10,000,000 dollars from your parents. You realized that the purchasing power of the Jamaican Dollar is steadily decreasing and as such you decide to invest 80% of you inheritance on the Jamaica Stock Exchange to counter the dollar depreciation and of course build your wealth.

Your investigations on three stocks revealed the following estimates for the year 2022:

	JMMB		BNS		NCB
Stocks	Probability	Possible	Probability	Possible	Probability	Possible
		Returns		Returns		Returns
Quarter 1	0.40	20%	0.30	30%	0.20	24%
Quarter 2	0.30	14%	0.20	15%	0.50	22%
Quarter 3	0.20	10%	0.35	11%	0.20	14%
Quarter 4	0.10	5%	0.15	13%	0.10	9%

1. Calculate the expected return on EACH stock. (6 marks)

2. Compute the risk associated with EACH stock (12 marks)

3. You created a portfolio from the above stocks and decided to go ahead and invest the 80% of funds in the portfolio. You are now required to:

1. Determine how you will weight your funds to the three stocks in the portfolio. (Show the weight and money value allocated to stocks in the portfolio.) (3 marks)

2. Calculate the expected returns of the portfolio (3 marks)

3. Compute the covariance between the assets (9 marks)
4. Compute the correlation coefficient between the assets (6 marks)
5. Calculate the risk/standard deviations for the portfolio. (5 marks)
6. Explain why correlation between stocks is important to portfolio management. Based on the correlation, explain if there is any adjustments necessary for this portfolio and why

7. (6 marks)