081063
Securities and
Investments
Securities and Investments (ebook) :
Securities and Investments
Lesson 7 Overview
The purpose of this graded project is to give you the opportunity to use the
skills you’ve learned throughout this course in a series of real-world
applications. The three parts of this project require you to analyze portfolios
containing a number of securities using a variety of analysis tools. The skills
you’ll demonstrate in this graded project are essential to becoming a
successful financial manager.
Record your answers in a Word document with the question numbers clearly
labeled. Show your calculations or calculator inputs when indicated for full
credit. Perform all work using equations and a calculator. Do not submit o
use an Excel spreadsheet to calculate your answers.
7.1 Develop the ability to perform investments calculations
and analysis related to this course
Graded Project: Securities and Investments
READING ASSIGNMENT
Your project must be submitted as a Word document (.docx, .doc)*. Your project will
e individually graded by your instructor and therefore will take up to a few weeks to
grade. Be sure that each of your files contains the following information:
Your name
Your student ID numbe
Securities and Investments (ebook) (v1) : Lesson 7 : Page 1© 2020 Penn Foste
Inc.
The exam numbe
Your email address
To submit your graded project, follow these steps:
Log in to your student portal.
Click on Take Exam next to the lesson you’re working on.
Find the exam number for your project at the top of the Project Upload page.
Follow the instructions provided to complete your exam.
Be sure to keep a backup copy of any files you submit to the school!
Part 1: Sector Performance
Investment managers strive to outperform both the sector they focus on and
oad market indexes such as the S&P 500. The performance of a portfolio is
determined by both the weightings given to different types of investments as
well as the actual performance of these investments. In addition, the level of
isk an investor is willing to take on will impact the design of a portfolio.
To answer the questions in Part 1, you’ll use the information provided about
the portfolio in the table below. The portfolio is
oken out by sectors and
shows the investor’s portfolio’s weighting and performance and the S&P
500’s weighting and performance in each sector. The final column shows the
individual investments’ overall contributions to the portfolio. Note that an
investment can underperform the S&P and still have a positive contribution to
the portfolio based on the difference in weighting.
Portfolio Information
Secto
(1)
Portfolio
Weighting
(2) S&P
Weighting
(3)
Differen-
ces in
Weighting
(4)
Portfolio
Return
(5)
S&P
Return
(6)
Secto
Over-o
Under-
Perform
ance
(7) = (3) x (6)
Secto
Allocation
Contributions
Securities and Investments (ebook) (v1) : Lesson 7 : Page 2© 2020 Penn Foste
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Telecom-
munications
Services
3.10% 5.90% a. ? 2.50% 3.10% k. ? u. ?
Utilities 7.50% 3.80% b. ? 3.10% 1.90% l. ? v. ?
Information
Technology 14.30% 17.90% c. ? 4.90% 3.20% m. ? w. ?
Materials 6.30% 3.70% d. ? 4.80% 5.10% n. ? x. ?
Financials 13.40% 17.10% e. ? 6.20% 4.80% o. ? y. ?
Consume
Discretionary 12.70% 13.50% f. ? 2.10% 4.00% p. ? z. ?
Industrials 14.10% 11.90% g. ? 4.90% 3.10% q. ? aa. ?
Energy 8.40% 8.00% h. ? 3.70% 8.60% r. ?
. ?
Healthcare 15.30% 11.70% i. ? 9.80% 5.70% s. ? cc. ?
Consume
Staples 4.90% 6.50% j. ? 1.50% 13.20% t. ? dd. ?
1. Fill in the missing values in the table above for a quarterly comparison of
sectors with the S&P 500 Index. Remember when performing
calculations that the numbers shown are percentage values. Record you
answers as percentage values to two decimal places.
a. _______ k. _______ u. _______
. _______ l. _______ v. _______
c. _______ m. _______ w. _______
d. _______ n. _______ x. _______
e. _______ o. _______ y. _______
f. _______ p. _______ z. _______
g. _______ q. _______ aa. _______
Securities and Investments (ebook) (v1) : Lesson 7 : Page 3© 2020 Penn Foste
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h. _______ r. _______
. _______
i. _______ s. _______ cc. _______
j. _______ t. _______ dd. _______
2. Did the performance turned in by the investment manager underperform
or outperform the S&P 500? By how much? Show your work.
3. Which sector turned in the greatest positive contribution to the portfolio’s
performance? Explain why this investment made the greatest positive
contribution based on the differences in weighting and the sector over- o
under- performance.
4. Which sector made the greatest negative contribution to the portfolio’s
performance? Explain why this investment made the greatest negative
contribution based on the differences in weighting and the sector over- o
under- performance.
Part 2: Portfolio Analysis
Use the three portfolios shown below to answer questions 5–8 in Part 2.
Portfolio 1
Security Amount Invested Expected Return Beta
Security A $ 4,000 9% .80
Security B $ 5,000 12% 1.15
Security C $ 12,000 14% .95
Security D $ 8,000 15% 1.23
Portfolio 2
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Security Amount Invested Expected Return Beta
Security A $ 3,000 16% 1.22
Security B $ 11,000 13% 1.54
Security C $ 9,000 8% .87
Security D $ 6,000 11% .81
Portfolio 3
Security Amount Invested Expected Return Beta
Security A $15,000 10% 1.72
Security B $12,000 9% .81
Security C $ 3,000 12% .72
Security D $ 2,000 15% 1.54
5. Based on beta, which portfolio has the highest level of systematic risk?
Show your work.
6. If the risk-free rate is 5.5 percent, which of these portfolios has the
highest reward-to-risk ratio? Show your work.
7. Suppose that the risk-free rate is 5.5 percent, the return over three years
for each portfolio matches its expected return, and the portfolios have 3-
year annual return standard deviations as follows:
Portfolio 1 22%
Portfolio 2 26%
Portfolio 3 18%
If you were restricted to selecting one of the three portfolios to invest all
your money in, which should you choose based on that portfolio having
Securities and Investments (ebook) (v1) : Lesson 7 : Page 5© 2020 Penn Foste
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the best ratio of excess return per unit of total risk as measured by its
Sharpe ratio?
8. Suppose that the actual returns for Portfolios 1, 2, and 3 were as follows:
Portfolio 1 11.3
Portfolio 2 12.5
Portfolio XXXXXXXXXX
Also, assume that the risk-free rate was 5.5 percent and the average
eturn on the market portfolio was 8 percent.
a. Which of the three portfolios has the highest Jensen’s alpha? Show
your work.
. Which has the highest Treynor ratio? Show your work.
Part 3: Selecting a Portfolio
Use the two portfolios shown in the tables below to answer the questions in
Part 3.
Portfolio 1
Asset Category Percentage of Portfolio
U.S. small-company stocks 5
U.S. large-company stocks 10
International stocks 5
U.S. government bonds 50
U.S. corporate bonds 30
Portfolio 2
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Asset Category Percentage of Portfolio
U.S. small-company stocks 20
U.S. large-company stocks 30
International stocks 25
U.S. government bonds 15
U.S. corporate bonds 10
9. In your role as a financial advisor, you’re advising a client, Sally, a 30-
year old computer programmer who makes an above-average salary.
She’s investing money in her 401(k) that she doesn’t plan to use until
etirement. In your opinion, which of the two portfolios above would be
most appropriate for these funds? In your answer, explain why you
elieve the portfolio you’ve chosen is appropriate and explain why the
portfolio you didn’t choose is not appropriate.
10. In your role as a financial advisor, you’re advising a client, Bob, who has
just retired and rolled over his 401(k) into a self-directed IRA account.
Bob intends to use these funds to provide income to live on in his
etirement. In your opinion, which of the two portfolios above would be
most appropriate for these funds? In your answer, explain why you
elieve the portfolio you’ve chosen is appropriate and explain why the
portfolio you didn’t choose is not appropriate.
SCORING GUIDELINES
Your project will be graded according to the criteria found in the ru
ic below.
Ru
ic
Securities and Investments (ebook) (v1) : Lesson 7 : Page 7© 2020 Penn Foste
Inc.
Securities and Investments
Graded Project
Skill
Grading
Criteria
Excellent Good Satisfactory Poor GraderComments
Part 1
Question
1
All answers
are co
ect.
30
Many of the answers
are co
ect.
29
Some of the
answers are
co
ect.
28–26
Few or none of
the answers
are co
ect.
25–0
Question
2
The answe
and
explanation
are co
ect,
and
calculations
are shown.
5
The answer is
co
ect, but the
explanation o
calculations are
inco
ect.
4
The answer is
co
ect, but
the
calculations
o
explanation is
not shown.
3
The answer is
inco
ect, and
the
explanation
and
calculations
are not shown.
2–0
Question
3
The answe
and
explanation
are co
ect.
5
The answer is
co
ect, but the
explanation is
inco
ect.
4
The answer is
co
ect, but
the
explanation is
not shown.
3
The answer is
inco
ect
and/or the
explanation is
not shown.
2–0
Question
4
The answe
and
explanation
are co
ect.
5
The answer is
co
ect, but the
explanation is
inco
ect.
4
The answer is
co
ect, but
the
explanation is
not shown.
3
The answer is
inco
ect
and/or the
explanation is
not shown.
2–0
Part 2
Question
5
The answe
is co
ect and
the co
ect
calculations
are shown.
10
The answer is
co
ect and the cal-
culations are
inco
ect, or the
answer is inco
ect
ut the calculations
are co
ect.
9
The answer is
co
ect, but
the
calculations
are not
shown.
8–7
The answer is
inco
ect
and/or the
calculations
are not shown.
6–0
Securities and Investments (ebook) (v1) : Lesson 7 : Page 8© 2020 Penn Foste
Inc.
Question
6
The answe
is co
ect,
and the
co
ect
calculations