To: Rainier Ekstrom, Casa Bonita's Chief Executive Officer (CEO)
From: Investment Advisor
Re: Constructing & Managing a Portfolio
The process of portfolio construction can be quite complicated. Experts go through tons of research - past performance, future potential, and industry knowledge and depend on personal ideas into the market to reach the final list. Every investor is designed to increase profits while reducing danger. Individual investments must be analyzed not only on the risk-return trade-off in solitude but also on their participation to the risk-return compromise of the entire portfolio. This memo will be based on the Constructing and Managing a Portfolio Simulator that details the basic principles of portfolio development in regards to the risk-return compromise and the relationship between financial commitment technique and financial commitment performance. As a investment specialist for Casa Bonita Ceramics, I was assigned to choose the best shares and spend company sources to create a portfolio. This memo will details my choices made in the simulation, talk about the Ho rate and how it is applicable to financial commitment choices, and finally, provide suggestions for changes in the company's financial commitment technique in order to improve its financial commitment performance.
The following will be a recap of recent investment portfolio decisions and actions taken on behalf of Casa Bonita Ceramics with input and guidance from Casa Bonita's CFO, Jerome Walker and Corporate Treasurer, Nina Peres. Last March the investment team was authorized to invest $800,000 in the stock market with minimal risk and the highest yield possible. At that time the following capital market information was true.
Market Risk 15%Risk-Free Rate4.88%Market Return 11%Additionally, the following eight companies were provided as options for investments; the financial team was asked to chose the four stocks that would best suit Casa Bonita's investment goals and risk tolerance.
1. Desktop, Inc.; the largest seller of office supplies worldwide. Products include business services such as copying, printing, mailing, and shipping, as well as office equipment and software.
2. Grand Capital Insurance; a 50-year-old financial services company named as a Fortune 500 diversified financial company.
3. Levinthal Defense Systems; a defense contractor that builds missile systems, radars, targeting, reconnaissance, and navigation systems. Levintahl's largest customer is the U.S. Government.
4. Infoway Computers; IT products and service provider. Infoway is cutting edge in introducing new products to market and turns inventory very quickly.
5. Transconduit, Inc.; leader in designing, developing, and manufacturing high-performance, large badwidth silicon solutions. Also in the market of transport, switching and routing services.
6. Goldstein & Delaney Bank: a bank spread across 21 states and 3500 branches that offers retail account services as well as loans, investment, and financial services.
7.Western Connect Airlines; US based short haul low cost air service with the lowest operating cost in the industry and consistently offering the lowest cost airfare. Western Connect has grown from servicing three cities to 53.
8. One Voice Telecom; One of the largest telecommunication companies providing wire line and wireless communications.
The investment advisor has chosen four different ...