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- 15 Marks
FM – Nov 2021 – L3 – Q6 – Portfolio Management
Analyze the risk profile of Bettaluck plc's short-term equity portfolio and assess investment adjustments based on market returns and financial strategy.
Question
Bettaluck plc is experiencing a substantial net cash inflow, which has been temporarily invested in a short-term equity portfolio. This portfolio consists of investments in four Nigerian listed companies. The funds are intended to meet tax obligations, dividend payments, and future capital expenditures in several months.
Portfolio Details:
Required:
a. Based on the data provided, calculate the risk (i.e., Beta) of Bettaluck’s short-term investment portfolio relative to the market. (4 Marks)
b. Recommend whether the composition of Bettaluck’s short-term investment portfolio should be adjusted. Provide reasons for your recommendation, including relevant calculations. (6 Marks)
c. Discuss the factors a financial manager should consider when investing in marketable securities. (5 Marks)
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- 20 Marks
FM – May 2018 – L3 – SB – Q4 – Portfolio Management
Analyze SF Plc.'s portfolio beta and assess whether the short-term investment strategy is optimal.
Question
Sunmola Funds (SF) Plc. has a portfolio of short-term investments in the shares of four quoted companies.
| Company | Holding |
|---|---|
| Tomiwa (T) | 100,000 shares |
| Pascal (P) | 155,000 shares |
| Binta (B) | 260,000 shares |
| Yetunde (Y) | 420,000 shares |
You have the following additional information:
| Company | Beta | Market Value Per Share (Kobo) | Expected Total Return on Investment p.a (%) |
|---|---|---|---|
| T | 1.55 | 280 | 21.0 |
| P | 0.65 | 340 | 12.5 |
| B | 1.26 | 150 | 18.0 |
| Y | 1.14 | 9.5 | 18.5 |
The market risk premium is 10% per year, and the risk-free rate is 6% per year.
Required:
a. Estimate the Beta of SF Plc.’s short-term investment portfolio. (4 Marks)
b. Recommend, giving your reasons, whether the composition of SF Plc.’s short-term investment portfolio should be changed using relevant calculations. (10 Marks)
Hint: Consider the alpha values of the shares and the propriety of investing short-term funds in equity.
c. Explain THREE factors that a financial manager should take into account when investing in marketable securities. (6 Marks)
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- 15 Marks
FM – Nov 2017 – L3 – Q7 – Portfolio Management
Evaluate investment risk in different portfolio scenarios and explain the implications of beta and alpha values for KT Plc’s equity.
Question
a. In the context of the selection and holding of investments, discuss each of the following scenarios:
i. An investor holding only one security needs to be concerned with the unsystematic risk of that security. (3 Marks)
ii. However, an investor who holds a number of securities should take account of total risk. (3 Marks)
iii. An investor should never add to a portfolio an investment that yields a return less than the market rate of return. (3 Marks)
b. The equity beta of KT Plc. is 1.2 and the equity alpha is 1.4. Explain the meaning and significance of these values to the company. (6 Marks)
(Total 15 Marks)
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- 15 Marks
FM – Nov 2021 – L3 – Q6 – Portfolio Management
Analyze the risk profile of Bettaluck plc's short-term equity portfolio and assess investment adjustments based on market returns and financial strategy.
Question
Bettaluck plc is experiencing a substantial net cash inflow, which has been temporarily invested in a short-term equity portfolio. This portfolio consists of investments in four Nigerian listed companies. The funds are intended to meet tax obligations, dividend payments, and future capital expenditures in several months.
Portfolio Details:
Required:
a. Based on the data provided, calculate the risk (i.e., Beta) of Bettaluck’s short-term investment portfolio relative to the market. (4 Marks)
b. Recommend whether the composition of Bettaluck’s short-term investment portfolio should be adjusted. Provide reasons for your recommendation, including relevant calculations. (6 Marks)
c. Discuss the factors a financial manager should consider when investing in marketable securities. (5 Marks)
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- 20 Marks
FM – May 2018 – L3 – SB – Q4 – Portfolio Management
Analyze SF Plc.'s portfolio beta and assess whether the short-term investment strategy is optimal.
Question
Sunmola Funds (SF) Plc. has a portfolio of short-term investments in the shares of four quoted companies.
| Company | Holding |
|---|---|
| Tomiwa (T) | 100,000 shares |
| Pascal (P) | 155,000 shares |
| Binta (B) | 260,000 shares |
| Yetunde (Y) | 420,000 shares |
You have the following additional information:
| Company | Beta | Market Value Per Share (Kobo) | Expected Total Return on Investment p.a (%) |
|---|---|---|---|
| T | 1.55 | 280 | 21.0 |
| P | 0.65 | 340 | 12.5 |
| B | 1.26 | 150 | 18.0 |
| Y | 1.14 | 9.5 | 18.5 |
The market risk premium is 10% per year, and the risk-free rate is 6% per year.
Required:
a. Estimate the Beta of SF Plc.’s short-term investment portfolio. (4 Marks)
b. Recommend, giving your reasons, whether the composition of SF Plc.’s short-term investment portfolio should be changed using relevant calculations. (10 Marks)
Hint: Consider the alpha values of the shares and the propriety of investing short-term funds in equity.
c. Explain THREE factors that a financial manager should take into account when investing in marketable securities. (6 Marks)
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- 15 Marks
FM – Nov 2017 – L3 – Q7 – Portfolio Management
Evaluate investment risk in different portfolio scenarios and explain the implications of beta and alpha values for KT Plc’s equity.
Question
a. In the context of the selection and holding of investments, discuss each of the following scenarios:
i. An investor holding only one security needs to be concerned with the unsystematic risk of that security. (3 Marks)
ii. However, an investor who holds a number of securities should take account of total risk. (3 Marks)
iii. An investor should never add to a portfolio an investment that yields a return less than the market rate of return. (3 Marks)
b. The equity beta of KT Plc. is 1.2 and the equity alpha is 1.4. Explain the meaning and significance of these values to the company. (6 Marks)
(Total 15 Marks)
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