This essay focuses on Equities and Investment Analysis. in Kyla’s valuation of Hygro’s equity. Comment if these assumptions are reasonable or not?
ii. Kyla’s boss, Lauren
i. 3 main assumptions in Kyla’s valuation of Hygro’s equity. Comment if these assumptions are reasonable or not?
ii. Kyla’s boss, Lauren suggested that due to Hygro’s position in the industry life cycle, a constant dividend discount model may not be suitable for its valuation. Based on the information given above, at what stage of the industry life cycle Hygro is currently in?
iii. Based on the valuation models you have learned in your “Equities and Investment Analysis” class, can you suggest a more suitable valuation model that Kyla might use to value Hygro’s equity? Justify your answer with a brief explanation.
b) The optimal risky portfolio (P) provides expected return of 12% pa with 20% standard deviation. The risk free rate of return (rf) is 3% pa. Based on this information Robert draws the following Capital Allocation Line (CAL) to identify his complete investment portfolio. Robert expects to earn 10.2% pa return from his investments.
i. firstly, Identify the labels for Axis X and Axis Y in the Chart above.
ii. secondly, Among the portfolios represented by the points A, B, C and D on the graph – identify Robert’s complete portfolio. Justify your answer.
iii. thirdly, Based on Robert’s return expectation, what proportion of his wealth should be invested in the risk-free asset?
((3 + 1 + 2 = 6) + (1 + 2 + 1 = 4) = 10 Marks)
a) The table below provides past performance of Maverick Mutual Fund. Bob has invested $10,000 in the fund on 31st Dec 2019 and he still holds that investments. As on 30th June 2021, the fund manager claims that the fund has earned an annualised return of 8.26% over the past 6 quarters. (see the details in table)
8.i. Do you agree with the fund manager’s claim ? Provide reasons to justify your answer. (Numerical calculations are not necessary).
ii. Jenny also invested in Maverick Mutual Fund. She purchased 100 units of the fund on 31st of March 2020 and again purchased another 500 units on 30th September 2020. Finally, she sold all her Maverick Mutual Fund units on 30th June 2021. Do you think Jenny earned higher rate of return than what Bob has earned from his investment in Maverick Mutual Fund? Why or Why not? (Numerical calculations are not necessary).
a) When is it appropriate to use following ratios to measure portfolio performance ? Briefly explain with examples.
i. Sharpe ratio
ii. Treynor Ratio
iii. Information Ratio