Portfolio - Bond and Share Valuation

Question: Explore the portfolio, bond and share valuation. Answer: Executive summary In this given assignment, three questions are there which will give an in-depth knowledge of portfolio, bond and share valuation. This analysis will help the investors to invest in the financial market maximizing their return while minimizing risk. In portfolio valuation, covariance means measure of joint deviation of share JAY and KAY around their respective mean (expected return). To create a portfolio of JAY and KAY giving 15.6% return weights of JAY and KAY must be 70% and 30% respectively. In Bond valuation, market price of three different types of bond is determined, based on which it is classified whether the bond is trading at par, premium or discount by comparing with face value. Market price of bond B also helps in determining the number of bonds required to raise a fund of $465260. In share valuation, three types of Dividend Discount Model (DDM) for no growth, constant growth and two period growths is analyzed. Also the difference between just paid and plans to pay a dividend can be understood properly. Conclusion It can be concluded that, portfolio valuation gives us a clear picture of how two stocks can be combined in different weights to give high return with less risk as compared to investment in individual stock. In case of bond valuation, determination of bond price will help to identify which bond is trading cheap so that it can be bought and which one is trading rich so that it can be sold in the market immediately. In case of share valuation, determination of its market price will help the investors in deciding which share to hold and which one to sell with the help of DDM. Recommendation In case of portfolio valuation, different weights of share JAK and KAY must be used to build a portfolio having maximum expected return with minimum risk as correlation coefficient (r) of these two stock is negative i.e.-0.3 which means there is immense benefit of diversification, in fact to the extent that a risk free portfolio can be constructed. In case of bond valuation since Bond A and B are trading at a discount so, it is advised to buy those bonds whereas Bond C is trading at a premium so it is advised to sell that bond. It is advised to buy share of NoChange Ltd as it is trading at a very lower price as compared to other shares.