Investment Portfolio Term Paper

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Corporate Finance

Andrea Corbridge is an investor who is considering investing in the stock portfolios of the Adelphia Technologies and Kalama Corp. The paper uses the Excel software to calculate the possible investment combination of the two portfolios. Based on the expected returns and the standard deviations of the two equities, the paper calculates the optimal investment combinations from 0% to 100% and the findings reveal there will be 18.65% expected returns from the investments. Based on the information on the two portfolios, it is advisable for Andrea to investment 39% ($19,736.84) of his $50,000 in the Kalama Corp equity and 61% ($30,263.16) in the Adelphia Technologies equity to earn 19% expected returns. Major reason is that the returns of the equity of Adelphia Technologies are higher than the returns of the Kalama Corp equity. By using the 39% and 61% investment combination, Andrea is likely to earn 19% expected returns from the two investment portfolios.

However, the paper suggests that investing in the Medford Barnett Corporation (MBC) equity portfolio is not a good decision because the share price of the MBC investment portfolio is likely to decline in the future.

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The paper uses the 3-month moving average to forecast the share prices of the MBS stock portfolio in the next 12 months. The findings reveal that its stock price is likely to decline from $52.03 to $46.19 within the next 12 months, which will make Andrea to record a loss from the investment if eventually he decides to sell the stocks after 12 months.

1.

The data in the Table 1 reveals the possible investment combination for the Kalama Corp. And Adelphia Technologies. (Graham, Smart, & Megisson, 2010). The paper uses the Excel software to calculate the optimal combination for the two equity portfolios, and the results are in the Table 1 reveals the output of the optimal combination.

Table 1. Possible Investment Combination for the Kalama Corp. And Adelphia Technologies.

Inputs

Standard

Expected

Expected

Deviation

Returns

Risk Free Rate

Risk Free Rate

0%

3%

0%

Kalama Corp.

23%

15%

12%

Adelphia Technologies

32%

23%

20%

Correlation

-0.1789

Outputs

Optimal

(x-axis)

Trade off Curve

Trade off line

Combination

Standard

Expected

Expected

Deviation

Returns

Return

Trade off

0%

0.3189

0.2311

Trade off

1.00%.....

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