Finance homework week6 help

Running head: SECURITIES ASSESSMENT 1

SECURITIES ASSESSMENT 2

Securities Assessment

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Securities Assessment

In this essay, the securities that will be assessed in the portfolio are the Ford Motor Co., Fiat Chrysler, Toyota Motor Corp, Valeant Pharmaceutical International Inc., Pfizer Inc. and Eli Lilly and company stocks. This will also include this week’s portfolio analysis.

Calculating the value of the stocks using the dividend valuation model (DVM)

The formula for zero growth is P = D/r

The formula for zero growth is P = D/ (r-g)

The formula for zero growth is

Where;

P is the stock value or price

D is the dividend rate

r is the required rate of return

g is the growth rate

The following table shows the values of the securities in the portfolio:

Value of stock for	Details	Zero growth	Details	Constant growth	Details	Variable growth
Ford Motor Co.	P = 1.96/0.16	12.32	P = 1.96/ (0.16 – 0.06)	19.6	P = (1.96/ (0.16 – 0.06) + 1.96/(0.16 -0.07))/2	20.69
Fiat Chrysler	P = 0.56/0.16	6.9	P = 0.56/(0.16 – 0.00)	3.5	P = (0.56/(0.16 – 0.00) + 0.56/(0.16 – 0.01))/2	3.62
Toyota Motor Corp	P = 3.54/0.03	117.39	P = 3.54/(0.3 -0.01)	177.0	P = (3.54/(0.03 -0.01) +3.54/(0.3 -0.005))/2	159.3
Valeant Pharmaceutical International Inc.	P = 2.0/0.08	25.46	P = 2.0/(0.08 – 0.02)	33.3	P = (2.0/(0.08 – 0.02) + 2.0/(0.08 – 0.01))/2	30.94
Pfizer Inc	P = 2.1/0.06	35.22	P = 2.1/(0.06-0.01)	42.0	P = (2.1/(0.06-0.01) + 2.1/(0.06-0.02))/2	47.25
Eli Lilly and company	P = 2.8/0.04	80.13	P = 2.8/(0.04-0.015)	112.0	P = (2.8/(0.04-0.015) + 2.8/(0.04-0.013))/2	107.85

Comment on the differences between the DVM value and the current market value

In most cases as deduced from these stocks, the DVM values are higher than the market values. The exceptional is this analysis is the case of Fiat Chrysler company stock where the market value is higher than the DVM value and this is attributed to its zero growth rates. These differences are attributed to the concept of demand and supply (Mobarek & Mollah, 2016).

Weekly portfolio analysis

The weekly average performance record of the securities in my portfolio

Name Symbol Last price Change

Ford Motor Company ,F 12.32 0.07

Fiat Chrysler Automobiles NV,FCAU 6.90 0.00

Toyota Motor Corp (ADR) TM 117.39 0.44

Valeant Pharmaceuticals Intl Inc VRX 25.46 -1.86

Pfizer Inc. PFE 35.22 0.09

Eli Lilly and Co LLY 80.13 0.09

The charts below show the performance of Ford Motor Corp stock:

From the 3-month chart, it can be deduced that the highest price was $14.13 that was realized around 20th or July and the lowest was $11.8 which was realized at the beginning of August (Ford Motor Company (F) Stock Chart, 2016).

Effects of placing portfolio returns on moving stop-loss orders at prices 10 percent below the market prices of your securities

Setting a moving stop-loss order for 10% below the market price of the securities will limit the loss to 10%. I will be stopped out at a point where the stock price is:

(90/100)*12.32 = $11.09. The recalculated rate of return will be: (90/100)*16 = 14.4%

The background information on macroeconomic, industrial, financial market, political, or other news events that might affect the risk and return of the portfolio

According to Roze & Roze (2016), the current microeconomic, industrial, financial market and political environment and other events and news in the United States and around the world are likely to affect the risk and return of portfolio. The pre-election and the post-election period in the United States is likely to affect the investor confidence owing to the party and the candidate who wins and the financial market policies that may change with the elected president. For example, there may be anticipated financial market problems that will be associated with Clinton or Trump winning the presidential election in the United States this year. The inflation rate is quite low this year with a relatively higher unemployment rate and this is also likely to affect the portfolio performance because of the change in market demand and supply. The US rising national debt and unconventional monetary policies are likely to affect the financial stability of US economy and this is likely to affect my portfolio by affecting the cyclical stocks. European Union with Britain has been one of the leading buyers of these securities and the current diplomatic tussles within the Union will also affect the performance of the stock.

The reassessment of the asset investment with detailed analysis and rationale

The investment on the six assets form a portfolio that is less risky with better expected rate of return. The securities are among the best performing assets in the cyclical and non-cyclical markets. The securities in the cyclical market have relatively higher market values and are mainly less affected by the dynamics in the financial markets. The stocks that had the highest value in this week’s analysis were Toyota Company and the lowest was Fiat Chrysler stocks both from the cyclical market. The rational for choosing to invest in these stocks as a portfolio mainly lies on risk-return analysis. These stocks have a lower risk and higher return when pooled together.

A review of the changes in the risk of the portfolio and recalculation of the portfolio's beta, based on your buying and selling of securities

In this week’s analysis, I realized that that risk of the portfolio increased as compared to last week. This is indicated by the portfolio’s beta; last week’s portfolio beta was 0.66 and this week’s portfolio’s beta is 0.68. This indicates that the portfolio is riskier by 0.02 this week. With the increase in the risk of the portfolio, I will ensure that I increase the component of the less risky stocks in the portfolio while reducing the component in the more risky stocks.

Comments on trading activity or turnover

This week’s trading activity was intense and as usual the financial market was a bee-hive of activities with loser and gainers. The trading activities for my portfolio realized the highest turnover from Pfizer Inc with 21.48Billion USD market capitalization and the lowest from Valeant Pharmaceutical International Inc. with 8.12 Billion USD market capitalization; both of these are from the non-cyclical industry. From the cyclical industry, Toyota Motor Corp registered the highest with 195.31 market capitalization. The news of the current volatility of the China’s stock market is one of the factors that affected the portfolio’s performance this week. The political environment which is characterized by the intense election campaigns in the United States is another factor that shocks the stocks this week. Other factors were a bit stable this week and that is why the risk of the portfolio was not much affected.

References

Ford Motor Company (F) Stock Chart. (n.d.). Retrieved August 12, 2016, from http://www.nasdaq.com/symbol/f/stock-chart?intraday=off

Mobarek, A., & Mollah, S. (2016). Global stock market integration: Co-movement, crises, and efficiency in developed and emerging markets.

Roze, G. N., & Roze, G. D. (2016). Tensile trading: The 10 essential stages of stock market mastery.