Introduction Of Corporate Finance And Investments Assignment
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The report prepared here highlights the respective performances related to the portfolios that are generated by various shares and Gilts. The basic purpose behind the formulation of this financial research report is to identify various techniques that are used to calculate the returns related to taxation during a certain span of investment period. Different sections within this financial research report ideologies numerous aspects related to portfolio investment in relation to shares and the Gilts. The report also categorically represents various types of risks that are related to returns within the portfolios or the investments made upon various stock exchanges like the FTSE 100. Another important part of the discussion behind the preparation of this financial research task is to elaborate on the ways by which portfolio investment could be hedged between a certain period and related difficulties that are faced during the times of hedging of the portfolios. All the calculations regarding the investment of the portfolios have been done within this report by considering the initial sum invested, approximately £ 10,00,000. Every portfolio that was invested during the times of completion of the assignment task were found to be liquidated after the completion of approximately one year.
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It is very important to understand the risk and the returns before involving in any investment because there are lots of risks which can be overcome just by analysing the investment before investing. So before doing it, it is important to understand the risk of investment. In any investment, the risk is to get less than what we invested, which means the returns will come less than the expected return. There why so many risk factors in the investment markets, just like the market volatility, the determination of the business fundamentals, the inflation of the business fundamentals.” This kind of inflation is leading towards the Loss of the buying power for the next investments and higher expenses. These business fundamentals can suffer from the increasing competitive pressure” (Barajas et al., 2018). The weak fundamentals can also lead to the decline of profit, and even it can cause the Loss. Where on the other hand, the return means the amount, which is going to be achieved by the investor after a period of time of investing. There is always an expected return depending on which the investor invested in a market. Though it is not possible to investigate 100% before investing in any market because 100% prediction cannot be made by anybody, there are some processes to cut down the risk factor to some extent. Maybe, for example, the stock component of the portfolio can be hired when somebody is starting their first job because, at that time,they can take more risk for the growing purpose of their investment. The market movement should be noticed carefully before the investment because the nature of the market can predict the future return values of that investment properly. Risk cannot be eliminated by using this diversified portfolio of stocks and bonds, and other assets. This kind of portfolio composition should be consistent enough with the investor’s financial objective and the level of tolerance of the investor for the risk. The investment returns are always hired for the risky assets. There is always some mental pressure which has to be faced by the investor before investing in these places. Just like in the savings account, the deposit certificates, the treasury bonds cause more returns because of all the safe investment, but in the case of risk in investment, The returns are always higher than the safe Investments just like investing in the stock market are riskier than investing in the savings accounts, but in that case, the return amount is always higher than the saving amount the loss amount is also higher than the safe accounts.
Detailed Analysis
“A detailed analysis has been performed between two of the most reputed shares that hold their position within the FTSE 100 list of share companies “(Barker, 2017). The detailed comparisons have been performed on the basis of various data that have been obtained within a time span of 52 weeks, and the graphical analysis of both the types of share companies have been done efficiently so that the users of this report can gain detailed information regarding the functioning of both the companies.
Analysis of Aviva Plc
The graph related to Aviva plc is extracting a download slope. Upon a time span of 52 weeks, it can be seen that the company has gone through ups and downs related to the expected returns from the market, and the graph represents exactly the same thing. A detailed performance has been made between both the companies regarding the performance of the investment and the returns that the shares of the companies provide to its customers during a time period of 52 weeks. Starting from the month of February 2020, it can be seen that the returns that are extracted by the company were extracted in negative figures, which shows that the company was not running properly and the investing techniques that are used by the company are very poor, thus fetching negative returns in the market.” Till the month of February to June 20 20, the company extracted negative returns from the market; however, during the month of July, the company was able to extract positive returns in the market of approximately 0.033438 and 0.033725, respectively (Berrick et al. 2017)”. Again, in the month of September, the company was able to extract positive returns of approximately 0.027138 and 0.027775 accordingly. The month of February also turned out to be positive during the year 2021, and during that year, the company was able to extract a positive return of absolutely 0.019498 and 0.044601, respectively. The graphical representations that are extracted denote that during the initial weeks in the company was able to gain momentum, and the investment related to the portfolios that are done by the company gave the company positive returns.” After the month of June, the company again failed to deliver quality returns from the market, and therefore, the graph can be seen to be going down the word” (Boyne, 2018). Representation on the basis of graphs and bar charts will highlight the prospects discussed here more efficiently to the users of this research report.
“The condition of this share company is good in comparison to the previous company, and it can be seen that BAE Plc was able to extract positive returns from the market on various occasions” (Bulger et al., 2017). The company, during the month of February 2020, expected positive returns of approximately 0.006416 and 0.146722 approximately as a result of total investments down on behalf of the portfolios within the share market. The companies of March and April and I proved adverse results on behalf of the company, and again during the month of June, the company was able to gain positive returns from the market of approximately 0.029946 and 0.007529, respectively.” During the months of August, the company had a bill to extract positive returns of approximately 0.0060 and 0.040334 respectively from the market, which seems that the company was more efficient and capable in comparison to the previous company and the share values of this company or more in demand to the investors or the shareholders, so wish to invest in this particular company” (Bywaterset al. 2018). Although both the companies have been trying hard to extract a higher amount of returns from the market, it can be seen that BAE Plc is in a better form to extract revenues from the market at a larger scale in comparison to the previous share company.
BAE PLC
Date
Open
High
Low
Close
Adj Close
Volume
Returns
24-02-2020
32.29
32.78
30.84
31.27
29.04971
1446100
02-03-2020
31.2
31.83
30.82
31.07
28.86391
1247300
0.006416
09-03-2020
28.98
29.51
25.05
26.83
24.92497
1437700
0.146722
16-03-2020
23.74
24.55
20.64
20.65
19.18377
1522100
0.261805
23-03-2020
20.79
26.33
19.89
24.85
23.08556
1578600
-0.18514
30-03-2020
25.14
25.91
23.62
24.45
22.71396
913200
0.016227
06-04-2020
24.98
27.07
24.97
26.83
24.92497
833800
-0.09289
13-04-2020
26.06
28.02
25.49
27.87
25.89113
1422300
-0.03803
20-04-2020
27.03
27.28
24.72
24.97
23.19704
1876400
0.109876
27-04-2020
25.25
26.85
24.99
25.04
23.26207
1544600
-0.0028
04-05-2020
24.62
25.67
24.04
25.64
23.81946
1982800
-0.02368
11-05-2020
24.89
25.75
23.8
24.1
22.38881
1648400
0.061942
18-05-2020
24.39
24.56
23.87
24.07
22.36094
1394900
0.001246
25-05-2020
25.29
25.44
24.32
24.58
22.83473
1664000
-0.02097
01-06-2020
24.59
26.35
24.58
26.1
24.2468
3410000
-0.06
08-06-2020
26.24
27.49
24.87
25.33
23.53147
1619600
0.029946
15-06-2020
25.28
25.81
24.85
25.14
23.35496
1832200
0.007529
22-06-2020
25.39
25.85
23.92
24.06
22.35165
1940500
0.043909
29-06-2020
24.26
24.4
23.76
24.08
22.37023
448200
-0.00083
06-07-2020
24.67
24.78
23.98
24.09
22.37952
1532800
-0.00042
13-07-2020
24
25.05
23.44
24.58
22.83473
1382800
-0.02014
20-07-2020
25.21
25.72
24.39
24.46
22.72325
2442200
0.004894
27-07-2020
24.72
26.64
24.59
25.74
23.91236
401700
-0.05101
03-08-2020
25.39
27.76
25.19
26.61
24.72059
1582900
-0.03324
10-08-2020
27
28.22
27
28.12
26.82899
1363500
-0.05519
17-08-2020
28.29
28.87
27.62
28.15
26.85761
1024800
-0.00107
24-08-2020
28.51
28.69
27.83
27.98
26.69542
386000
0.006057
31-08-2020
27.42
28.07
26.8
27.32
26.06572
852800
0.023871
07-09-2020
26.75
27.3
26.01
26.24
25.0353
745600
0.040334
14-09-2020
27.12
27.85
26.82
27.5
26.23745
432700
-0.0469
21-09-2020
26.31
26.31
25.03
25.46
24.29111
697900
0.077077
28-09-2020
25.58
25.97
24.99
25.95
24.75862
1102400
-0.01906
05-10-2020
25.95
26.37
25.61
26.17
24.96852
563600
-0.00844
12-10-2020
25.8
25.95
24.46
25.05
23.89994
492100
0.04374
19-10-2020
25.33
25.64
23.24
24.25
23.13667
763500
0.032457
26-10-2020
24.19
24.22
20.67
20.88
20.32156
1085600
0.149625
02-11-2020
21.32
23.86
21.18
22.98
22.36539
2982300
-0.09583
09-11-2020
23.98
25.57
23.52
25.22
24.54548
2681700
-0.09301
16-11-2020
25.51
28.11
25.46
28.1
27.34846
2123500
-0.10813
23-11-2020
28.61
28.74
27.22
27.38
26.64771
354300
0.025957
30-11-2020
27.41
29.17
27.12
28.64
27.87401
785300
-0.04499
07-12-2020
28.28
28.4
26.71
27.03
26.30707
739600
0.057857
14-12-2020
27.46
27.75
26.84
27.13
26.4044
616900
-0.00369
21-12-2020
26
27.94
26
27.55
26.81316
377300
-0.01536
28-12-2020
27.96
28.54
26.82
27.15
26.42386
372800
0.014625
04-01-2021
27.8
28.18
27
27.46
26.72557
1585100
-0.01135
11-01-2021
26.98
27.71
26.81
27.12
26.39467
3554200
0.012459
18-01-2021
26.89
27.15
26.27
26.49
25.78152
1821300
0.023504
25-01-2021
26.02
26.72
25.4
25.63
24.94452
767300
0.033004
01-02-2021
25.88
26.47
25.65
26.24
25.5382
1041400
-0.02352
08-02-2021
26.32
26.88
26.07
26.87
26.15135
936900
-0.02373
15-02-2021
27.24
27.32
26
26.08
25.38248
2858900
0.029842
22-02-2021
26.14
28.81
26.14
27.3
26.56985
825500
-0.04572
Evaluation of the performance
A detailed evaluation regarding the performance of both the companies that are listed within the shares and the FTSE share market has been made under this section of the assignment. It can be found that the expected returns that have been earned by Aviva plc are approximately 0.00320701 and the variance noted is 0.00573213, accompanied by a standard deviation of approximately 0.07571086.
AVIVA PLC PERFORMANCE STATS
Particulars
Amount
EXPECTED RETURNS
0.00320701
Particulars
Amount
VARIANCE
0.00573213
Particulars
Amount
STD DEVIATION
0.07571086
In comparison, it can be seen that BAE Plc has expected returns of approximately 0.00261101, and the variance that is recorded by the company is approximately 0.00476823 in accordance with a standard deviation of nearly 0.06905239. Does it can be concluded that although both the companies have the potential to extract a higher number of returns as their portfolio investments that are done in a time span of approximately 52 weeks, it can be seen that the previous company named Aviva plc has better capacity in comparison to the former company to extract a higher number of returns from the market.
BAE PLC
Particulars
Amount
EXPECTED RETURNS
0.00261101
Particulars
Amount
VARIANCE
0.00476823
Particulars
Amount
STD DEVIATION
0.06905239
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Ways to Hedge the Portfolios and Disadvantages related to them
The term hedging actually belongs to the stock market. The people who are familiar with the stock market can easily understand this term because this is one of the most discussed topics in the financial market. “The People who are the new commerce in the stock market can understand this term from the old investors. This heading is not directly associated with earning money, but it is actually listening to The Loss potential “ (Weithorn, 2017). It means it helps to decrease the loss amount or, more correctly, it decreases the risk factor. There are some advantages of hedging as well as some disadvantages also those are:
Advantages of hedging:
The primary advantage of hedging is it limits the loss amount for the individual person. That is why they can overcome the fear of investing in the stock market. Just like if any person is just going to buy a new car or car insurance, in that case, it is actually a kind of hedging which decreases the risk of the car damage amount. The insurance company has to pay the damage amount because the insurance company bears the Loss. That is why there is no fear in the customer to invest in a car.
It also protects the profit amount for the investor who is doing the hedging. If an investor is not able to make the decision that the stock has to be sold on hold, then it has to take the future decisions for the investor.
It Liquifies the financial market like in the case of the stock market, the derivatives market, the commodity market and the hedging help to trade their stocks in different markets so that the investor can reduce the loss amount and discover better price.
Disadvantages of Hedging:
Hedging is not a free process; it has a certain amount of costs associated with hedging. There is also an insurance premium in the case of insurance case. The risk factor is even law than the normal insurance that so that is also a kind of ageing, and the customer has to pay for their insurance premium that is the cost of the hedging. Sometimes the hedging expenses can be unnecessary.
It also has some limitation in the hatching that it also limits the toffee side of the Loss because when there is hedging in the market, the investment is going to be safe. So, the profit amount has also become low in this case.
“There is another kind of limitations in this heading that all kinds of these cannot be held. There are some kinds of risk which have to be faced by the investors fully because there is no investment insurance or loss management in all the risks”(Olivetti and Petrongolo, 2017).
So, from the above paragraph, it is clear that there are some advantages as well as disadvantages which are present in the hedging process, and this process should be applied to the portfolio and the requirements The heading is actually beneficial for the investors who are going to invest huge amounts of money in the stock market because, in that case, they are enjoying the facility of hedging. But in the case of the investors who are not even frequently investing in the markets as well as who are investing a small amount of money in the market for them, hedging is actually an unnecessary cost because, in this case, they have to pay a little amount for this hedging process and that is going to be completely in vain because the amount used in fact higher than their investment.
Conclusion
Investing in the portfolios requires a higher amount of talent and skills on behalf of the investors who are wishing to invest in these types of investment appraisal techniques. This report highlights two of the most reputed share companies that are listed within the FTSE hundred companies or the stock exchanges and the performance that these two companies are generating to its customers as the form of returns from the market investments in terms of the portfolio have also been efficiently analysed as a part of this research topic.
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