Portfolio Construction

Topics: Stock market, Investment, Short Pages: 18 (5041 words) Published: March 11, 2013
Construction of an Efficient Portfolio

Prepared for:
Pallabi Siddiqua
Assistant Professor
Department of Finance
University of Dhaka

Prepared by:

Alamgir Kabir
ID. No. 15-154
Section: B
Department of Finance
University of Dhaka

Date of Submission: 22ndNovember, 2012

Letter of Transmittal
22ndNovember, 2012
Pallabi Siddiqua
Assistant Professor
Department of Finance
University of Dhaka
Subject: Report on “construction of portfolio of 10 listed securities in DSE and interpretation. Dear Madam,
I am glad to submit the report on “construction of portfolio of 10 listed securities in DSE and interpretation”. I would like to inform you that this report is very helpful for me to know about the construction of an efficient portfolio which will lead me to analyze the stock market and choose perfect stock from the huge number of stocks in the market and it will also help me to be capable of behaving with the market according to its trend. I am very thankful to you for giving me such realistic opportunity to make an assignment on this topic. I earnestly request you to call me if you think any further work should be done on the topic that you have chosen for me. Sincerely Yours,

Alamgir Kabir
ID. No. 15-154
Section: B
Department of Finance
University of Dhaka


Preparation of this report would be impossible for me if I could not get help from my honorable course instructors Prof. Dr. Mahmood Osman Imam and Pallabi Siddiqua. Both of them have provided me the basic concept of portfolio and how it is possible to construct an efficient portfolio. I am also grateful to all of my group mates for their enthusiastic support and effort. I also express my especial thanks and gratitude to the professionals of DSE as well as the DSE website who and which provided me the valuable information regarding this assignment.

Table Of Contents
Letter of Transmittal2
Executive Summary5
Origin of the Report6
Objectives of the Report6
Banking Industry10
Company Analysis16
Selection Criteria of Assets17
Selected Company and Industry:17
Price Adjustment procedure:19
Preparation of Return Series20
Mean Return Calculation:20
Calculation of Risk Free Rate of Return21
Calculation of individual securities Excess Return21
Calculation of Portfolio Excess Return22
Calculation of portfolio variance23
Solver Function with interpretation23
Scenario 01: Maximizing Theta by NOT allowing short Sell24
Scenario02: Maximizing Theta by allowing short Sell25
Scenario03: Minimizing risk (Standard Deviation) by NOT allowing short sale27
Scenario04: Minimizing risk (Standard Deviation) by allowing short sale28
Scenario05: Minimizing risk by allowing short sale for a given return30
Scenario06: Minimizing risk by NOT allowing short sale for a given return31
Scenario 7: Maximize return given standard deviation without short sale32
Scenario 8: Maximize return given standard deviation with short sale33 Conclusion34
Data Sources:34

Executive Summary

To build up an efficient portfolio, I selected 10 individual securities from different industries based on their NAV & P/E ratio and collected their monthly closing prices for five years. I have calculated the return for 60 months. I have used 6 months T-bills rate to estimate monthly risk free rate. Then I calculated the mean return which is used to calculate the portfolio return & excess return. Using this excess portfolio return and standard deviation, I have calculated Theta. I have imposed equal weight to all selected securities. I have used solver function to find out the weight of an efficient portfolio. By using solver function, I found out ten scenarios. These are...
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