Portfolio 4

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Business

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Nov 24, 2024

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BUS 5111: Written Assignment 4 Case Study Professor Rebecca Attah 12/12/2023 Introduction Following the conversation with a friend of mine who has just inherited some investments and doesn't know how to proceed, I decided to lend some assistance through advice. Although the numbers presented in this paper are an accurate indicator of the yields of such investment I have still advised my friend to seek professional advice from a tax expert as well as a financial adviser. This paper represents the results after carefully reviewing the portfolio and calculating the yields of each investment as well as determining the weighted average yield for the entire portfolio.

Firstly I computed the current market value of each security position of the portfolio, then calculated individual yields based on current market pricing, and finally determined the weighted average factor and the weighted average yields (Please see photo of results attached). Current Market Value Within finance, the current market value (CMV) is the approximate current resale value for a financial instrument. Just as with any other object of value, the current market value offers interested parties a price for which they can enter into a transaction (Kenton, Brock & Li, 2022). It is calculated on excel by multiplying the portfolio position which is the number for shares, by the current market price. For example, Pepsi had 70 shares at 86.75 per share which gives us 6072.5 current market value. After we add up the current market value for all ten of the stock in the scenario we get the Total Portfolio Market Value. Individual yields "The dividend yield is a financial ratio that tells you the percentage of a company's share price that it pays out in dividends each year. (Fernando, Boyle, Perez, 2023) For example; Chevron's estimate dividend /interest is $176.00, and its current market value is $11,144.12 (estimated dividend ÷current market value =1.58%(estimated current yield). This is the same concept for all the other calculations.

Weighted average factor This refers to the individual contributions of each investment in a portfolio provided that each investment is given equivalent weight (Bhardwaj, 2019). It is calculated by dividing the current market value by the total portfolio market value. These numbers for all of the stocks added together should equal 1. For example Altria stocks (CMV $5954÷ TPMV $53,035.76 = 0.112278206) Weighted average yield This number was deduced for each of the common stocks by multiplying the estimated current yield by the weighted average factor. For example Chevron has a weighted average yield of 0.21% which was calculated by (3.39 x 0.061681401 = 0.21%). Yield based on cost vs yield based on current market value. Lets use Proctor & Gamble for example, they can underperform as it relates to its estimated current yield (2.25%)but it can have a satisfactory market value ($5920) with an over-performing weighted average yield of 0.25%. On the other hand, Altria has a higher than median current yield of 4.15% with ok portfolio weighted average yield of 0.47%.

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What are the different uses of both? Dierking (n.d) explains to us clearly that "Yield on cost is the annual dividend paid by the security divided by the original cost basis of the investment. It is different from the dividend yield, which measures the annual dividend against the current price of the security. Non-quantitative observations I would advise my friend it might be a wise idea to sell shares in companies like Proctor & Gamble, Pepsi, Johnson & Johnson and Coco cola and invest in companies like Chevron. At first glance the portfolio makes me happy for the variety of stocks my friend is now in possession of and the way he can maneuver them to his benefit with the correct guidance. I would strongly advise my friend though, that their are some things that can never be quantified, and may inherently bring more value, or a value that cannot be captured in the raw numbers. This include management, branding, marketing and so forth. Original Excel file Kindly forgive the unavailability of the actual Excel spreadsheet on Excel as at the firm the program is set to view and print only as we upgrade, but being familiar with the process I did them manually for this case study instead (Please see photo attached).

Conclusion I am pleased to have helped a friend get a look into what she can expect with the stocks she inherited. I still advise her to seek professional advice. Whatever she decides to do with them though, she is in a better position than she was before and I am happy for her. References Bhardwaj, S. (2019, September 9). How to calculate weighted average returns using MS Excel. Retrieved from The Economic Times:https://economictimes.indiatimes.com/wealth/invest/how- to-calculate-weighted-average-returns-using-ms-excel/articleshow/71022110.cms Dierking, D. (n.d) What is yield on cost? Retrieved from https://www.dividend.com/how-to- invest/what-is-yield-on-cost/#:~:text=Yield%20on%20cost%20is%20the,current%20price%20of %20the%20security. Fernando, Boyle, Perez, (2023). Dividend yield: meaning, formula, example, pros and cons. Retrieved from https://www.investopedia.com/terms/d/dividendyield.asp#:~:text=The %20dividend%20yield%20is%20a,dividend%20yield%20would%20be%205%25.

Kenton, W. Brock, T. & Li, T. 2022). Current Market Value (CMV): What it is, how it works. Retrieved from https://www.investopedia.com/terms/c/cmv.asp#:~:text=Within%20finance%2C %20the%20current%20market,can%20enter%20into%20a%20transaction

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