MANAGEMENT

MANAGEMENT

Definition:

A set of activities planning, organizing, staffing, leading and controlling to achieve the organizational goals.

or

Management is the process of designing and maintaining an environment for efficiently accomplishing selected aims.

or

Set of activities (planning, organization, leading,controlling) directed at an organization resources (finance, human, physical and information) to achieve the organizational goals in an effecient and effective manner is called management.

Efficient:
The efficient mean do work be fore the due date.

Effective:

To complete the work in time. eg. if we say someone to complete task in 10 days and he complete the task in 10 days no more or no less that person called effective person.

Manager:
A person who perform all organization activities are called manager.

Management Resoureces:

There are four basic management resources.

• Finance
• Human
• Physical
• Information

Finance:
Finance mean the assets like as Capital.

Human:
All human Activities.

Physical:
Which have physical existance. eg. material and tangible
Tantable: Which can be seen or touched.

Information:

Procedure of the work eg. hight, length information of the any building and development process etc.

MBA NOTES MANAGEMENT

MARKOWITZ MODEL

MARKOWITZ MODEL

Portfolio Selection:
If number of portfolio we use this method to select the portfolio.
for example groups of protfolios sample
A:  NBP, Nestle
B:  NBP, Nestle, MCB
C:  Lucky, Nestle

Feasible Set of Portfolio:
The number of portfolio which are available for their selection

Efficent Portfolio: (Max. return, less risky)
The portfolio which is selected from the feasible set of protfolio.

Decision Rules 1:
If the different portfolio have same return then we select that portfolio who's risk is minimum.

Decision Rules 2:

If the different protfolio have same risk then we should select that portfolio who's return is maximum.

Draw Back:

This model just focus only those portfolio who's return are same or risk are same. It ignore the other portfolio.

Example:
No. of Portfolio          Return          Risk
A                                20%              18%
B                                19%              17%
C                                20%              16%
D                                16%              12%
E                                 22%              12%
F                                 9%                 4%


According to Rule 1:
we will select the  C portfolio because its return same as A but C risk is less than A.

According to Rule 2:
We will select the E portfolio because its risk same as D but E Return is more than D.


INVESTMENT AND PORTFOLIO MANAGEMENT
INVESTMENT VS SPECULATION AND GAMBLING
TYPES OF INVESTOR
INVESTMENT COMPANIES
TYPES OF MUTUAL FUNDS
TYPES OF BONDS FUNDS
MONEY MARKET FUNDS
SECURITIES MARKET
TYPES OF INDEX
TYPES OF BROKERS
BROKER'S ACCOUNT
MARGINAL ACCOUNT
ORDER AND ITS TYPES
RISK AND ITS TYPES
RETURN PORTFOLIO ANALYSIS
RISK PORTFOLIO ANALYSIS
RISK AND RETURN OF AN INDIVIDUAL SECURITIES
ANALYSIS OF COMMON STOCK VALUATION
CAPM MODEL (CAPITAL ASSET PRICING MODEL)
MARKOWITZ MODEL



MBA NOTES INVESTMENT AND PORTFOLIO MANAGEMENT

CAPM MODEL (CAPITAL ASSET PRICING MODEL)

According to this model company have to face two main types of risk.

Risk= Systematic + un-systematic

Systematic Risk:

The risk face by the company due to its external environment is called systematic risk. This risk cannot be controled by the company.

Example:
Pocitical instability, war in the country, energy crises in the country etc.

Un-Systematics Risk:

The risk face by the company due to its internal environment is called un-systematic risk.This risk can be conroled by the company.

Example:
shortage of employees, Clash between the management etc.

CAP MODEL:

A model which shows the relationship between the systematic return and not shows un-systematic.

_
R = Rf + (Rm - Rf) x  β (beta)

_
R = Return (expected)

Rf = Risk free Return
The minimum return which is desire by the investor

Rm = Market Return
The return which is provided by the market

β = systematic Risk

Note= when minimum then always keep the Rf value less and Rm value

Example:
we expect the return a security return Rm 4% but in market we get 10%
Rm - Rf = Market risk premium
10% - 4%   = 6%


INVESTMENT AND PORTFOLIO MANAGEMENT
INVESTMENT VS SPECULATION AND GAMBLING
TYPES OF INVESTOR
INVESTMENT COMPANIES
TYPES OF MUTUAL FUNDS
TYPES OF BONDS FUNDS
MONEY MARKET FUNDS
SECURITIES MARKET
TYPES OF INDEX
TYPES OF BROKERS
BROKER'S ACCOUNT
MARGINAL ACCOUNT
ORDER AND ITS TYPES
RISK AND ITS TYPES
RETURN PORTFOLIO ANALYSIS
RISK PORTFOLIO ANALYSIS
RISK AND RETURN OF AN INDIVIDUAL SECURITIES
ANALYSIS OF COMMON STOCK VALUATION
CAPM MODEL (CAPITAL ASSET PRICING MODEL)
MARKOWITZ MODEL




MBA NOTES INVESTMENT AND PORTFOLIO MANAGEMENT

ANALYSIS OF COMMON STOCK VALUATION

COMMON STOCK VALUATION METHODS

Investor can use two methods for common stock valuation in which investor try to find out expected risk or return.

• Dividend Discount Model
• Dividend Growth Model

In these method first we find out the expected value and then compare with actual value and then take the decision we should buy the security or not. these are mostly risky investment.

Dividend Discount Model:

V = D1/(1 + ke)1 + D2/(1 + ke)2 + ........ Dn/(1 + ke)n

Discounting:
The present Value of future amount is called Discounting.

Example:
Suppose V=37 Expected Value or its also called Intrinsic value
MV= market value

Rules:
if Intrinsic Value  > MV   then buy the security            
         suppoes  IV=37             MV=  32

If Invrinscic (IV) < MV  then not buy the security
suppose   IV = 37     MV = 40
       
if IV=MV then break even
suppose   IV=37 and MV=37

Dividend Growth Model:

V = D1 /ke-g
V=Intrinsic value or Expected value

Rules:
if Intrinsic Value V > MV   then buy the security
If Invrinscic V < MV  then not buy the security
if V=MV then break even

Example:
V =46 and MV =42  now security will buy   because V>MV


INVESTMENT AND PORTFOLIO MANAGEMENT
INVESTMENT VS SPECULATION AND GAMBLING
TYPES OF INVESTOR
INVESTMENT COMPANIES
TYPES OF MUTUAL FUNDS
TYPES OF BONDS FUNDS
MONEY MARKET FUNDS
SECURITIES MARKET
TYPES OF INDEX
TYPES OF BROKERS
BROKER'S ACCOUNT
MARGINAL ACCOUNT
ORDER AND ITS TYPES
RISK AND ITS TYPES
RETURN PORTFOLIO ANALYSIS
RISK PORTFOLIO ANALYSIS
RISK AND RETURN OF AN INDIVIDUAL SECURITIES
ANALYSIS OF COMMON STOCK VALUATION
CAPM MODEL (CAPITAL ASSET PRICING MODEL)
MARKOWITZ MODEL




MBA NOTES INVESTMENT AND PORTFOLIO MANAGEMENT

RISK AND RETURN OF AN INDIVIDUAL SECURITIES

RISK AND RETURN OF AN INDIVIDUAL SECURITIES

In this analysis we do only one securities analysis

Return Formula:
=Cash Payment received (interest + dividend) + Difference between the price (capial gain)
------------------------------------------------------------------------------------------ x 100
                                      Purchasing price of the security

Example:
suppose Pepsi
Purchasing price = 25
Dividend / yield = 2
Selling price = 28

=    2 + 3
     --------  x  100
       25

= 20%  Return

return can be  (+ ve) (- ve) or zero

2nd METHOD:

If probability is given  in the question
E(R) = ∑ R x P

E(R)=Expected Return
R = total return
P = probability

∑ = Sum

Example:
pepsi security

Year:     1991 ,           1992 ,          1995,             2000
R:       20%=0.2    15%=0.15     -13%=-0.13    10%=0.1
P:       50%=0.5    10%=0.1         20%=0.2       20%=0.2
R x P: 0.1               0.05                -0.026          0.02         =  total 0.109
E(R)= 0.109 or 10.9%

propability = happen or non happen
Probability total answer  = 1

3rd Method:

If probability is not given

use mean formula=
_
X  = ∑X / n

_
x  = Expected Return

∑x = Total return

n = number of years


INVESTMENT AND PORTFOLIO MANAGEMENT
INVESTMENT VS SPECULATION AND GAMBLING
TYPES OF INVESTOR
INVESTMENT COMPANIES
TYPES OF MUTUAL FUNDS
TYPES OF BONDS FUNDS
MONEY MARKET FUNDS
SECURITIES MARKET
TYPES OF INDEX
TYPES OF BROKERS
BROKER'S ACCOUNT
MARGINAL ACCOUNT
ORDER AND ITS TYPES
RISK AND ITS TYPES
RETURN PORTFOLIO ANALYSIS
RISK PORTFOLIO ANALYSIS
RISK AND RETURN OF AN INDIVIDUAL SECURITIES
ANALYSIS OF COMMON STOCK VALUATION
CAPM MODEL (CAPITAL ASSET PRICING MODEL)
MARKOWITZ MODEL




MBA NOTES INVESTMENT AND PORTFOLIO MANAGEMENT

RISK PORTFOLIO ANALYSIS

RISK PORTFOLIO ANALYSIS

For risk analysis we use the correlation and we check the variable dependable or nondependable each others.

Rules:

If variables answers will be (+ve) then variable dependable or if the variables answer are (-ve) then nondependable.

(+ve) risky protfolio
(-ve) less risky protfolio

Correlation:

It show the relationship between two or more than two variable

If the answer of the correlation is positive it indicate that the securities in the portfolio are depend on each other and this protfolio is a risky portfolio.

If the answer of correlation is negative it indicate that the securiteis in the protfolio are not depend on each other and this protfolio is called less risky protfolio.

Example:
A group securities       NBP , Nestle     answer (+0.05)
B group Securites       Lucky, NBP      answer ((-0.03)

Decision:

risk taker will choose option A
risk avioder will choose option B

S.D = risk
use the S.D formula to find out portfolio risk
in which  R is given, Sum of P must be eaqual to 1, and sum R x P total will be  E(R)= return  and  
 [R - E(R)]2  and sum[R - E(R)]2 x P

suppose
R= 0.20 , 0.16, 0.12, 0.05, -0.05
P=0.15, 0.20, 0.40, 0.10, 0.15 =1
after multipy ΣR x P  the  Sum R x P = 0.1075  it will called E(R)= return
[R - E(R)]2= will be 0.0085, 0.0027, 0.00015, 0.0033, 0.024
and last Σ[R - E(R)]2 x P will be total 0.00589

S.D(risk)= Square{Σ[R - E(R)]2 x P}
             =square{0.00589}
            = 0.076
    S.D=7.6%    or Risk = 7.6%

Note = Weight sum must be equal to 100%


INVESTMENT AND PORTFOLIO MANAGEMENT
INVESTMENT VS SPECULATION AND GAMBLING
TYPES OF INVESTOR
INVESTMENT COMPANIES
TYPES OF MUTUAL FUNDS
TYPES OF BONDS FUNDS
MONEY MARKET FUNDS
SECURITIES MARKET
TYPES OF INDEX
TYPES OF BROKERS
BROKER'S ACCOUNT
MARGINAL ACCOUNT
ORDER AND ITS TYPES
RISK AND ITS TYPES
RETURN PORTFOLIO ANALYSIS
RISK PORTFOLIO ANALYSIS
RISK AND RETURN OF AN INDIVIDUAL SECURITIES
ANALYSIS OF COMMON STOCK VALUATION
CAPM MODEL (CAPITAL ASSET PRICING MODEL)
MARKOWITZ MODEL




MBA NOTES INVESTMENT AND PORTFOLIO MANAGEMENT

RETURN PORTFOLIO ANALYSIS

RISK AND RETURN  PORTFOLIO ANALYSIS

To check how much return and risk will be faced by investor on portfolio investment is called risk and return protfolio analysis

In this question we show only how to calculate return.

Suppose after analysis we get these results    
Pepsi E(R) = 12%    S.D= 9%        amount=50000
Nestle E(R) = 20%  S.D= 12%       amount=30000
Lucky Cement = E(R) = 10%  S.D= 5%     amount=20000
what will be tatal risk and return?

Portfolio Return:

Rp = ∑W x  E (R) 

Rp = Return on portfolio
E(R) = Expected return
∑W = weights

what formula will be for three securite return calculation

Rp = Wa x  E (R)a + Wb x  E (R)b +Wc x  E (R)c

Weight: The portion of your investment amount invest in a single security is called weight.

Weight of single security = single security amount / total all securities amount
Tatal amount = 50000 + 30000 + 20000
                   = 100000
Pepsi weight or Expected return
Wa= 50000/100000 = 0.5     E(R)a =  12/100 = 0.12      

Nestle weight or Expected return
Wb = 30000/100000 = 0.3      E(R)b = 20/100 = 0.2
    
Lucky cement weight or Expected return
Wc = 20000/100000 = 0.2      E(R)c = 10/100 = 0.1

Put the all values

Rp = Wa x  E (R)a + Wb x  E (R)b +Wc x  E (R)c

Rp = (0.5 x 0.12) + (0.3 x 0.2) + (0.2 x 0.1)
     = 0.1400  or 14% Expected return  


INVESTMENT AND PORTFOLIO MANAGEMENT
INVESTMENT VS SPECULATION AND GAMBLING
TYPES OF INVESTOR
INVESTMENT COMPANIES
TYPES OF MUTUAL FUNDS
TYPES OF BONDS FUNDS
MONEY MARKET FUNDS
SECURITIES MARKET
TYPES OF INDEX
TYPES OF BROKERS
BROKER'S ACCOUNT
MARGINAL ACCOUNT
ORDER AND ITS TYPES
RISK AND ITS TYPES
RETURN PORTFOLIO ANALYSIS
RISK PORTFOLIO ANALYSIS
RISK AND RETURN OF AN INDIVIDUAL SECURITIES
ANALYSIS OF COMMON STOCK VALUATION
CAPM MODEL (CAPITAL ASSET PRICING MODEL)
MARKOWITZ MODEL




MBA NOTES INVESTMENT AND PORTFOLIO MANAGEMENT