Security Analysis & Portfolio Management

TABLE OF CONTENTS

Company Profile of 10 Securities.............3Aftab Automobiles Bangladesh Limited........3Confidence cement limited...................4Global Insurance............................6Mercantile Bank.............................8National Credit and Commerce Bank ltd......10Figure; Price movement of NCC bank Ltd for last one year...................................11Peoples Leasing and Finance Limited........11Purabi General Insurance Limited:..........13Summit Power Ltd:..........................14Uttara Bank Limited........................16Union Capital BD Limited...................17

Security Character of Chosen Securities.....19Portfolio Selection.........................25

Introduction

Course: Invest ManagementCourse Teacher: Samia Islam

Security portfolios are the combination of the securities to

make investment. Investment requires certain knowledge on

analyzing the historical and the theoretical returns and the risk

characteristic. The purpose of this paper is to show how to

calculate the risk and return of the securities and to analyze

the risk return characteristics. The other objectives are to

derive the optimal risky portfolio and the complete portfolio

which is the combination of the risky and risk free securities.

Then the comparison between the returns of arbitrarily chosen

portfolio and calculated portfolio. The profile of the securities

selected are also included in this paper for the ease of

fundamental analysis of the securities. The CAPM and SIM returns

2 | P a g ePrepared by- Roll: 1555, 1559, 1664, 1665, 1666

Company Profile of 10Securities


are also derived to see the underpriced and overpriced securities

according to the theoretical return.

Aftab Automobiles Bangladesh Limited

Aftab Automobiles Limited provides assembling and bus body building

services. The company offers its assembling services for various vehicles. It

is also involved in manufacturing and marketing a range of products, including

automotive, industrial, and solar batteries; home, office, industrial, and

medical furniture; and various paint products comprising distemper, enamel

paint, weather coat, plastic emulsion, A.C primer, navacem, and thinner. Aftab



Automobiles Limited was incorporated in 1967 and is based in Dhaka,

Bangladesh.

Financial Performance

Year

Year End P/E

% Dividend % Dividend YieldBased on

Continuing

operations

Including Extra-

Ordinary Income

2000 11.45 n/a 16.00 7.39

2001 6.40 n/a 16.0 7.42

2002 5.94 n/a 18.00 6.83

2003 4.32 n/a 18.00 4.74

2004 8.59 n/a 18.00 2.79

2005 4.92 n/a 20.00 6.26

2006 10.89 n/a 20.00 6.58

2007 20.26 n/a 6.00, 10%B 1.64

2008 15.82 n/a 25%B n/a

2009 69.72 16.31 10.00, 40%B 0.63

2010 32.27 n/a 10%, 30%B 0.21

2011 4.42 n/a 20.00, 20%B 0.76

2012 n/a n/a n/a n/a

Other Information of the Company:

Listing Year 1987Market Category AElectronicShare Y

SharePercentage:

Sponsor/Director30.5

Institute40.21 Public 29.29

RemarkNo. of shares is increased due to Stock Split. EPS & NAV arealso changed accordingly. 18,000,000 preference shares havebeen converted in to 11,359,547 Ordinary shares.



Figure: Price movement of Aftab Automobiles for Last One year

Confidence cement limitedConsidered as the conglomerate’s flagship company, Confidence Cement

Limited is one of the largest manufacturers of Portland cement in Bangladesh.

Out of the 7 entities, this is the only company which has publicly tradable

shares in the Dhaka and Chittagong Stock Exchanges. Confidence Cement Limited

is a blue chip company and has garnered the reputation of being in the “Top 20

Best Performing Companies” list consistently for over a decade.

Confidence Cement Limited is the first cement manufacturing company in

Bangladesh to be granted the ISO 9000:2002 Certification.

One of Confidence Cement Limited's quality policy is to maintain the

Bangladesh Standard and Testing Institution (BSTI) standard. In the year 2003,

BSTI adopted adopted the European Standard EN 197-1:2000 as BDS standard in

the cement sector. The specification set by Confidence Cement Limited is much

higher than the parameters specified by BDS EN 197-1:2000 and meets the ASTM

standard (IS-8112). This value is equivalent to that specified by many of the

multinational cement manufacturers present in the country, including Holcim,

Cemex and the cement manufactured by Heidelberg Cement. Confidence Cement


http://en.wikipedia.org/wiki/HeidelbergCement

http://en.wikipedia.org/wiki/Cemex

http://en.wikipedia.org/wiki/Holcim

http://en.wikipedia.org/w/index.php?title=Bangladesh_Standard_and_Testing_Institution&action=edit&redlink=1

http://en.wikipedia.org/wiki/ISO_9000

http://en.wikipedia.org/wiki/Blue_chip_(stock_market)

http://en.wikipedia.org/wiki/Stock_Exchanges

http://en.wikipedia.org/wiki/Chittagong

http://en.wikipedia.org/wiki/Dhaka

http://en.wikipedia.org/wiki/Portland_cement

http://en.wikipedia.org/wiki/Flagship


Limited (CCL) is the first private sector cement manufacturing company in

Bangladesh established in early 90’s with having 4,80,000 M/T annual

production capacity at Chittagong, 16 K.M away from Chittagong port, besides

Dhaka Chittagong highway.

The company has deployed over 100 tripper trucks and bulk carriers for

the carriage of cement, which is the highest in number in Bangladesh.

In the fiscal year 2010 - 2011 the company has generated a comprehensive

income of 242 Million Takas and distributed 40% of the profit to its

shareholders as dividend.


Year

Year End P/E


Continuing

operations

Including Extra-

Ordinary Income

2000 4.43 n/a 30.00 8.10

2001 3.68 n/a 25.00 8.06

2002 20.60 n/a 20.00 8.34

2003 14.49 n/a 5.00 3.81

2004 -9.50 n/a 5.00 4.16

2005 10.78 n/a 5.00 4.24

2006 6.40 n/a 15.00 10.83

2007 13.30 n/a 15.00 4.06

2008 n/a n/a 10%B n/a

2009 24.45 n/a 10.00, 20%B 0.72

2010 45.63 n/a 25.00, 15%B 0.85

2011 28.23 n/a 20.00, 20%B 1.61



Listing Year 1995Market Category AElectronic Share Y

Share Percentage:Sponsor/Director

23.47Govt.0

Institute

31.78Foreign 0 Public 44.75

Remark 1. 752,400 Right Shares of Tk 100 each at an issue price of Tk 700 each

including a premium of Tk 600 offered & subscribed on the basis of 10R:3



from 08.09.2010 To 23.09.2010 . 2.TK 788,083,523 Revaluation Surplus has

been added to Reserve & Surplus.

Figure: Price movement of Confidence Cement for last one year

Global InsuranceGlobal Insurance Limited (GIL) is one of the leading private non- life

insurance companies in Bangladesh. GIL was incorporated on April 23, 2000 as a

public limited company under the Companies’ Act, 1913, with a paid up capital

of BDT 60.00 million only. The shares of the company are listed on the Dhaka

Stock Exchange as a publicly traded company in 2005. At present, the company

has been operating its business through 20 branches located at different

strategically important areas of Bangladesh. Stepping on its 11th birthday,

Global Insurance Limited has now become a big family of 20 respected board

members, 10 dedicated senior management members, 450+ committed staffs,

numerous valued clients and thousands of esteemed shareholders with a paid up

capital of BDT 191.65 million.

With the slogan, “Symbol of Security and Peace” during the last 11

years, GIL has been helping people at the time of need; taking all the steps

when needed and has been proud to be a partner in progress. As an experienced

insurer, GIL has been operating as a financially strong and stable general

insurance company. The company has sound reinsurance arrangements, and

leverages its local and international reinsurance programmes to underwrite all

types of general insurances, at all levels – from small business to very big7 | P a g e

Prepared by- Roll: 1555, 1559, 1664, 1665, 1666


business. Hence GIL has achieved an excellent market reputation with the

leading position in the non- life insurance business industry of the country.

Global Insurance has a combination of both local and foreign shareholders.

Sound risk management has always been at the heart of management. This

discipline aided the management in managing various risks incorporated with

insurance business efficiently since the year of its inception. Whether it is

financial risk arising from the change in the value of company’s investments

and insurance liability, or credit risk from our investment in bonds and other

security, management is capable of monitoring and managing those risks

efficiently.

To coup with the challenge of 21st century GIL has taken initiative to

fully computerize its operation by the end of 2011. It will enhance its

servicing capacity upto international level.

Financial Performance (Continue):

Year

Year End P/E


Continuing

operations

Including Extra-Ordinary

Income






2005 5.95 n/a 10 11

2006 8.87 n/a 5.00 6.13

2007 9.17 n/a 7.00 5.51

2008 20.80 n/a 10%B n/a

2009 45.89 n/a 10%B n/a

2010 92.05 n/a 10%B -

2011 45.10 n/a 10%B -



Course: Invest ManagementCourse Teacher: Samia IslamOther Information of the Company:


Share Percentage:Sponsor/Director

35.78Govt.0

Institute

23.92Foreign 0 Public 40.3

Remark

1. The Face Value of the securities has been changed into TK 10. The

No. of Shares, Market Lot, EPS, NAV and DPS have been changed

accordingly.

Figure: Price Movement Of Global Insurance For Last One Year



Mercantile Bank

Mercantile Bank Limited is a commercial bank headquartered in Dhaka,

Bangladesh. It was established on 20 May 1999; and commenced commercial

banking operation on 2 June 1999. It is a public limited company with limited

liability under the bank companies act, 1991. Its share is listed in Dhaka

Stock Exchange and Chittagong Stock Exchange. The bank provide products and

services in retail banking, corporate finance, Islamic Finance, asset

management, equity brokerage and security. It has 80 branches in Bangladesh

and employ around 1,600 employees

Vision

Would make finest corporate citizen.

Mission

Will become most caring, focused for equitable growth based on

diversified deployment of resources, and nevertheless would remain

healthy and gainfully profitable Bank.

Objectives

Strategic objectives

to achieve positive Economic Value Added (EVA) each year.

to be market leader in product innovation.

to be one of the top three Financial Institutions in Bangladesh in terms

of cost efficiency.

to be one of the top five Financial Institutions in Bangladesh in terms

of market share in all significant market segments we serve.

Financial objectives

to achieve 20% return on shareholders' equity or more, on average.


http://en.wikipedia.org/wiki/Security_(finance)

http://en.wikipedia.org/wiki/Equity

http://en.wikipedia.org/wiki/Asset_management

http://en.wikipedia.org/wiki/Asset_management

http://en.wikipedia.org/wiki/Islamic_Finance

http://en.wikipedia.org/wiki/Corporate_finance

http://en.wikipedia.org/wiki/Retail_banking

http://en.wikipedia.org/wiki/Chittagong_Stock_Exchange

http://en.wikipedia.org/wiki/Dhaka_Stock_Exchange

http://en.wikipedia.org/wiki/Dhaka_Stock_Exchange

http://en.wikipedia.org/wiki/Limited_liability

http://en.wikipedia.org/wiki/Limited_liability

http://en.wikipedia.org/wiki/Bangladesh

http://en.wikipedia.org/wiki/Dhaka

http://en.wikipedia.org/wiki/Commercial_bank





Year

Year End P/E

% Dividend % Dividend YieldBased onContinuingoperations

Including Extra-OrdinaryIncome

2000 n/a n/a n/a n/a2001 n/a n/a n/a n/a2002 n/a n/a n/a n/a2003 9.25 n/a 25%B -2004 9.99 n/a 25%B -2005 6.72 n/a 5%, 20%B 1.922006 8.59 n/a 25%B -2007 11.62 n/a 20%B n/a2008 10.17 n/a 20%B n/a2009 12.88 n/a 22%B n/a2010 17.26 n/a 22%B n/a2011 12.13 n/a 23%B -2012 n/a n/a n/a n/a

Other Information of the Company:Listing Year 2004Market Category AElectronic Share Y

Share Percentage: Sponsor/Director 40.39

Institute 18.44

Public 41.17

Remark

1. 643,611,955 Revaluation reserve has been added to Reserve &Surplus. 2. The Face Value of the securities has been changed into TK 10. The No. of Shares, Market Lot, EPS, NAV and DPS have been changed accordingly



Figure: Price movement of Mercantile bank for the last one year

National Credit and Commerce Bank ltdNational Credit and Commerce Bank Ltd. bears a unique history of its

own. The organization started its journey in the financial sector of the

country as an investment company back in 1985. The aim of the company was to

mobilize resources from within and invest them in such way so as to develop

country's Industrial and Trade Sector and playing a catalyst role in the

formation of capital market as well. Its membership with the browse helped the

company to a great extent in these regard. The company operated up to 1992

with 16 branches and thereafter with the permission of the Central Bank

converted into a fully fledged private commercial Bank in 1993 with paid up

capital of Tk. 39.00 crore to serve the nation from a broader platform.

Since its inception NCC Bank Ltd. has acquired commendable reputation by

providing sincere personalized service to its customers in a technology based

environment.

The Bank has set up a new standard in financing in the Industrial, Trade

and Foreign exchange business. Its various deposit & credit products have also

attracted the clients-both corporate and individuals who feel comfort in doing

business with the Bank

Mission

To mobilize financial resources from within and abroad to contribute in

Agriculture's, Industry & Socio-economic development of the country and to

play a catalytic role in the formation of capital market.



Vision

To become the Bank of choice in serving the Nation as a progressive and

Socially Responsible financial institution by bringing credit & commerce

together for profit and sustainable growth.


Year

Year End P/E



2000 6.36 n/a 10.00,10%B 11.452001 4.23 n/a 18.00,12%B 8.812002 4.27 n/a 15%B -2003 14.40 n/a 10.00, 10%B 4.852004 6.67 n/a 30%B -2005 6.45 n/a 10%, 10%B 4.302006 7.25 n/a 10.00,12.5%B 3.462007 8.81 n/a 30%B -2008 9.47 n/a 30%B n/a2009 15.26 n/a 47%B n/a2010 17.03 n/a 32%B n/a2011 9.44 n/a 10.00, 17%B 3.292012 n/a n/a n/a n/a


Share Percentage:

Sponsor/Director27.45 Govt.0 Institute

12.94Foreign 0.31 Public 59.3

Remark TK 504,453,078 Revaluation Reserve has been added to Reserve &Surplus.



Figure; Price movement of NCC bank Ltd for last one year

Peoples Leasing and Finance LimitedPeople’s Leasing and Financial Services Limited (PLFS) is a financial

institution established within the ambit of Financial Institutions Act-1993

and was incorporated as a Public Limited Company under Companies Act-1994 on

August 12, 1996. Company obtained license from Bangladesh Bank on November 24,

1997 to carry on lease finance business. Authorized Capital of the Company is

Tk. 500 million divided into 5 million ordinary shares of Tk. 100/- each while

Paid-up Capital as on September 30, 2004 stands at Tk. 130 million subscribed

by the sponsors. Now a day’s Company become successful and has made a well

built base to create its position as a progressive Leasing Company and an

individual self in versatile arena of FI of the Country.

PLFS Strives-

♦ To help create national wealth through Institutional frame work.

♦ To perform financial responsibilities with proper accountability.

♦ To help develop a pro-active approach in the Financial Market.

♦ To develop as a genuine development partner of the entrepreneurs.



♦ To achieve organizational excellence through sound Human Resource Management(HRM).

♦ To develop a mutual cooperation of high quality and strategically balanced portfolio in the Financial Market.

♦ To mobilize various sources of fund for its marketing operations.

♦ To develop and provide a wide range of financial services to the customers.

♦ To ensure good Corporate Governance and sound human relations practices.


Year

Year End P/E



2000 n/a n/a n/a n/a2001 n/a n/a n/a n/a2002 n/a n/a n/a n/a2003 n/a n/a n/a n/a2004 n/a n/a n/a n/a2005 7.40 n/a 45%B -2006 6.49 n/a 30%B -2007 7.79 n/a 35%B -2008 12.96 n/a 20%B n/a2009 18.46 n/a 38.5%B n/a2010 53.81 n/a 75%B n/a2011 27.72 n/a 5.00, 10%B 0.722012 n/a n/a n/a n/a

Other Information of the Company


Share Percentage: Sponsor/Director 42.43 Institute 12.91

Public 44.66

Remark

1. The numbers of shares have been changed due to stock split ( 100 to 10). The EPS & NAV have been changed as well. 2. The company has confirmed that 120,000,000 Preference Shares of Tk. 10.00 each have been converted into 91,16,673 Ordinary Shares



Figure: Price movement of PLFS for last one year

Purabi General Insurance Limited: Purabi General Insurance Co Ltd. is a property and casualty insurance

company. The Company underwrites fire insurance, marine cargo and hull

insurance, motor insurance and miscellaneous insurance.

Financial Performance :

Year

Year End P/E

% Dividend % DividendYield

Based onContinuingoperations

Including Extra-Ordinary Income

2000 17.83 n/a 12.00 11.062001 20.28 n/a 12.00 10.172002 24.61 n/a 10.00 7.662003 24.12 n/a 10.00 7.662004 21.02 n/a 10.00 8.332005 14.91 n/a 10.00 13.892006 14.20 n/a 10.00 13.892007 136.36 n/a - -2008 22.49 n/a 10%B n/a2009 29.71 n/a 10%B n/a2010 28.53 n/a 15%B -2011 116.95 n/a 10%B n/a2012 n/a n/a n/a n/a

Other Information of the CompanyListing Year 1995



Market Category A

Electronic Share Y

Share Percentage:

Sponsor/Director 50.45

Institute 5.2 Foreign 0 Public

44.35

Remark1. The Face Value of the securities has been changed into TK 10. The No. of Shares, Market Lot, EPS, NAV and DPS have been changed accordingly.

Figure: Price Movement of Purabi General Insurance for last One year

Summit Power Ltd:Summit Power Limited (SPL), sponsored by Summit Group, is the first

Bangladeshi Independent Power Producer (IPP) in Bangladesh in private sector

providing power to national grid. SPL was incorporated in Bangladesh on March

30, 1997 as a Private Limited Company. On June 7, 2004 the Company was

converted to Public Limited Company under the Companies Act 1994.

Summit Power Limited in 2001, has successfully established three power plants

of 11 MW capacity each, for sale of electricity to Rural Electrification Board

(REB) on Build, Own and Operate basis at Savar, Narsingdi and Comilla. During

2006 and 2007 in each of the above three places, 2nd unit was commissioned

enhancing the capacity of SPL to 105 MW. In 2009 SPL with its 99% owned two

subsidiaries has established 4 new power plants raising its capacity to 215

MW. In 2011 SPL has commissioned another power plant of 102 MW capacity at



Narayanganj under Summit Narayanganj Power Limited, where SPL has 55%

ownership.

In the year 2011 Summit Power Limited has consolidated its position

further by acquiring 53,955,326 numbers of ordinary shares of Khulna Power

Company Limited (KPCL). It gives SPL the status of 18.7% of the ownership of

KPCL and with that status an additional capacity of 50 MW (approximately) has

been added with that of SPL being the total capacity of 367 MW.

Considering the immense opportunities, the company is striving to

establish more power plants around the country. The fast-growing company has

set a mission to expand the company with a power generation capacity to the

tune of 1000 MW, which is a modest 20% of the electricity requirement in

Bangladesh.

Objectives

• Generate and provide uninterrupted reasonably priced electricity to our

customers.

• Efficient utilization of capital, machines, material and human resources.

• Continuous improvement of customer satisfaction and resource management.

Vision

To provide quality & uninterrupted electricity to the vast majority of rural

Bangladesh for their personal, social & economic development.

Mission

"Empowering Bangladesh, we can & we will." To expand the company into a power

generation capacity to the tune of 1000 MW which is 20% of the electricity

requirement of Bangladesh and maintain that level.

Information of the Company:Listing Year 2005Market Category AElectronic Share YShare Percentage: Sponsor/Director Govt.0 Institute Foreign 0.61 Public 19.01



51.37 29.01

Remark

1. TK 794,231,503 Revaluation Surplus has been added to Reserve. 2. No. of Share has been changed due to stock split.NAV & EPS have also been changed. 3. The paid up capital of the company has been increased by 3,000,000,000 Preference shares converting into 25,361,973 ordinary shares. 4. EPS for 2010 is calculated based on weighted average no. of shares.


Year

Year End P/E




2000 n/a n/a n/a n/a2001 n/a n/a n/a n/a2002 n/a n/a n/a n/a2003 n/a n/a n/a n/a2004 9.04 n/a n/a n/a2005 9.46 n/a 10%,10%B 2.832006 20.64 n/a 20%B -2007 46.65 n/a 20%B -2008 46.69 n/a 20%B n/a2009 48.04 n/a 25%B n/a2010 45.49 n/a 30%B n/a2011 14.62 n/a 25%B -2012 n/a n/a n/a n/a

Figure: price Movement of Summit Power for last One Year



Uttara Bank Limited

Uttara Bank-one of the largest and oldest private-sector commercial bank in

Bangladesh, with years of experience. Adaptation of modern technology both in

terms of equipment and banking practice ensures efficient service to clients.

213 branches at home and 600 affiliates worldwide create efficient networking

and reach capability. Uttara is a bank that serves both clients and country.

UBL is one of the largest private banks in Bangladesh.

It operates through 213 fully computerized branches ensuring best

possible and fastest services to its valued clients.

The bank has more than 600 foreign correspondents worldwide.

Total number of employees nearly 3,562.

The Board of Directors consists of 13 members.

The bank is headed by the Managing Director who is the Chief Executive

Officer.

The Head Office is located at Bank’s own 18-storied building at

Motijheel, the commercial center of the capital, Dhaka.


Year

Year End P/E



2000 2.37 n/a - -2001 0.96 n/a - -2002 2.60 n/a - -2003 6.44 n/a 50.00 3.932004 27.09 n/a 50.00 1.782005 10.63 n/a 20%,100%B 1.322006 18.56 n/a 20.00,100%B 0.862007 47.34 n/a 100%B -2008 47.61 n/a 100%B n/a2009 31.44 n/a 50%B n/a2010 30.76 n/a 20.00, 20%B 1.202011 15.53 n/a 20.00, 15%B 2.572012 n/a n/a n/a n/a





Share Percentage: Sponsor/Director 10.23 Govt.0 Institute

8.65 Foreign 0 Public 81.12

Remark

1. TK 1,631,599,235 Revaluation Reserve has been added to Reserve & Surplus. 2. Government nominates the first eight directors and there is no obligation for nominated directors to own shares in his/her ownname. 3. The Number of Shares have been changed due to Stock Split (100 TO 10). The EPS & NAV have also been changed.

Figure: Price Movement of Uttara Bank for Lat one year

Union Capital BD LimitedUnion Capital Limited (UCL) is one of the largest investment banks and

fastest growing financial institutions in Bangladesh. Previously, it was known

as Peregrine Bangladesh that had its origins and businesses rooted in Hong

Kong. Out of the local office of the erstwhile Peregrine Capital Limited of

Hong Kong, Union Capital Limited, Dhaka emerged in early 1998 as a Bangladesh-

based company led by a group of the foremost entrepreneurs of the country. The

Company obtained permission from Bangladesh Bank to operate as a financial

institution under the Financial Institutions Act 1993 on 12 August 1998 and

registered as a full-fledged Merchant Banker with the Securities and Exchange



Commission on April 10, 2002. The Company went for Initial Public Offering in

May 2007 and listed it shares in both Dhaka and Chittagong Stock Exchanges in

July 2007.

Since inception, Union Capital Limited has been engaged in the

development of country's financial and capital market. The Company within a

short span of time has proved its worth as a most forward-working vigorous

organization achieving success with its wide network and strong local base.

Listed on both the Dhaka and Chittagong Stock Exchange, Union Capital

limited is an integrated financial service provider offering comprehensive

range of products and services in our local market.Union Capital’s core

competencies cover Lease Finance, Term Finance, SME Finance, Public Issue of

Shares, Portfolio Management, Margin Loan, Fund Raising, Corporate

Restructuring, Share Trading, Advisory Service, Deposit Management and many

more.We believe that we can best provide the service our customers need by

utilizing the strengths of our people combining our diversified services-

continuing to set the standard for our industry.


Share Percentage:

Sponsor/Director59

Institute 17 Foreign 0

Public 24

Remark TK 505,500,000 Revaluation Reserve has been added to Reserve &Surplus.


Year

Year End P/E




2000 n/a n/a n/a n/a2001 n/a n/a n/a n/a2002 n/a n/a n/a n/a2003 n/a n/a n/a n/a


Security Character of ChosenSecurities


2004 n/a n/a n/a n/a2005 n/a n/a n/a n/a2006 n/a n/a n/a n/a2007 18.65 n/a 30%B -2008 57.62 n/a 20%B n/a2009 42.07 n/a 30%B n/a2010 41.13 n/a 75%B n/a2011 35.59 n/a 10.00, 10%B 1.652012 n/a n/a n/a n/a

Figure: The price movement of Union Capital For Last One Year

AFTAB AUTOMOBILES LIMITED. HPR 0.2632%AR 157.604%

STANDARD 4.931%



DEVIATIONVARIANCE 0.243%

-15.000%-10.000% -5.000% 0.000% 5.000% 10.000% 15.000% 20.000% 25.000%

-0.40000

-0.30000

-0.20000

-0.10000

0.00000

0.10000

0.20000

0.30000

0.40000

0.50000

f(x) = 0.0243131442593418 x + 0.00266846113805112

AFTABAUTO SCL Linear (AFTABAUTO SCL)

Figure : SCL Aftab auto

SCL is the description of regression estimates with a straight line. The

regression is ran by estimating the DSE return as the independent variable and

the security returns in the dependent variable. The correlation of Afab

Auto’s market price is very lower with the DSE market return. The tiny R

square tell us that the variation in DSE excess return can explain a little of

the Aftab Auto’s series.



CONFIDENCE CEMENT LIMITED HPR 0.27558%AR 169.32%

St.DEV 4.290%VARIANCE 0.184%

-0.20000 -0.10000 0.00000 0.10000 0.20000 0.30000

-0.20000

-0.10000

0.00000

0.10000

0.20000

0.30000

0.40000

f(x) = 0.146263589673898 x + 0.00177037993536888

Confidence Cement

GLOBAL INSURANCE LTD. HPR 0.3313%AR 228.98%

St.DEV 6.107%VARIANCE 0.373%



-0.20000 -0.10000 0.00000 0.10000 0.20000 0.30000

-0.40000

-0.30000

-0.20000

-0.10000

0.00000

0.10000

0.20000

0.30000

0.40000

0.50000

f(x) = 0.21711844688642 x + 0.00338868441906215

GLOBAL+GLOBALINSURANCELinear (GLOBAL+GLOBALINSURANCE)

MERCANTILE BANK LIMITED HPR 0.0797%AR 33.20%

ST.DEV 3.868%VARIANCE 0.150%

-0.20000 -0.10000 0.00000 0.10000 0.20000 0.30000

-0.40000

-0.30000

-0.20000

-0.10000

0.00000

0.10000

0.20000

0.30000

0.40000

f(x) = − 0.0288580846244378 x + 0.00074621673922607

MERCENTILEBANK Linear (MERCENTILEBANK)

NATIONAL CREDIT ANDCOMMERCE BANK LIMITED HPR 0.0908%

AR 38.65%27 | P a g e

Prepared by- Roll: 1555, 1559, 1664, 1665, 1666



-0.20000 -0.10000 0.00000 0.10000 0.20000 0.30000

-0.40000

-0.30000

-0.20000

-0.10000

0.00000

0.10000

0.20000

0.30000

0.40000

f(x) = 0.494312204921476 x + 0.000222763047653574

NCCBANK Linear (NCCBANK)

PEOPLES LEASING & FINANCIAL SERVICES LTD. HPR 0.15416%AR 74.11%


-0.20000 -0.10000 0.00000 0.10000 0.20000 0.30000

-0.50000

-0.40000

-0.30000

-0.20000

-0.10000

0.00000

0.10000

0.20000

0.30000

f(x) = 0.108408099909542 x + 0.00157099700425563

PEOPLESLEASING

PURABI GENERAL INSURANCE COMPANY HPR 0.4863%



LIMITEDAR 473.31%


-0.60000

-0.40000

-0.20000

0.00000

0.20000

0.40000

0.60000

0.80000

f(x) = 0.0779610365914781 x + 0.00479350951487004

PURABIGENINS

PURABIGENINSLinear (PURABIGENINS)

SUMMIT POWER LTD. HPR 0.220%AR 120.76%


-0.20000 -0.10000 0.00000 0.10000 0.20000 0.30000

-0.60000-0.40000-0.200000.000000.200000.400000.600000.800001.00000

f(x) = 0.457594528025089 x + 0.0011559241091811

SUMMITPOWER

SUMMITPOWER Linear (SUMMITPOWER)

UTTARA BANK LIMITED. HPR 0.3308%



AR 228.38%ST.DEV 9.702%VARIANCE 0.941%

-0.20000 -0.10000 0.00000 0.10000 0.20000 0.30000

-0.60000

-0.40000

-0.20000

0.00000

0.20000

0.40000

0.60000

0.80000

1.00000

1.20000

f(x) = 0.0936971789820807 x + 0.0031875987097992

UTTARABANK Linear (UTTARABANK)

Union Capital Limited HPR 0.2330%A.R 131.15%



Portfolio Selection


-0.15000-0.10000-0.05000 0.00000 0.05000 0.10000 0.15000 0.20000 0.25000

-0.60000

-0.40000

-0.20000

0.00000

0.20000

0.40000

0.60000

0.80000

f(x) = 0.00403492518789426 x + 0.00222004695897757

UNIONCAP

UNIONCAP Linear (UNIONCAP)

Most of the Security Characteristics Line s examined here has little or

very low correlation with the market return. Except NCC bank, every security

has very low Multiple R. The intercepts and Slops are also very low because

there is very low correlation of the securities with Market HPR. DSE GEN index

return is taken as the market return here.

While we are going to select a portfolio, we have to consider 2 things.



1. The securities are negatively correlated

2. The RTV of the securities are highest or comparatively higher.

The negatively correlated securities are chosen for the well equipped

diversification of the portfolio. When the securities are negatively

correlated, then the risk of the securities are get lower. Negatively

correlated securities diversify the investment risk.

The securities with the highest RTV brigs the highest return in associate

with the higher risks. So, investment in the securities with higher RTV and

could be diversified by investing in the securities with negative correlation.

Now the selected 10 securities’ Average Daily holding period Return

(HPR), Annualized HPR return, Standard deviation (Which Measures the risk of

each security), Annualized Standard deviation, Risk premium, Real return and

the RTV is calculated. The Risk free rate is assumed as the latest T-bill

Rate 11.4% and the Inflation rate is assumed as the latest 10.50%.



Let’s see if we give an arbitrary equal weight of 10% investment to each

securities , what will be the risk return scenario-

We can see here the expected return is 1.40 or 140% which is in

annualized form. But if we limit our investment in five securities which have

the highest RTV (Aftab, Confidence, Global, Purabi, Uttara), let’s see what is

the scenario-



We can see here the return goes higher than that of investing in 10

securities. This is made with an arbitrary equal weight of investment. The

portfolio risk is 38% and the return is 218.1%



But if we limited our equally arbitrated investment into 3 securities

which have highest RTV, we’ll see a rise in the return and lowering of the

risk.

The return is now 271% which is higher than before and the risk is

lower by 4% , came down to 34%. Lower Coefficient of Variation is also the

proof of chosing the right securities.-



But this selection is only on RTV basis. We have to look on the

diversification motive too. So, we have to find out the negatively correlated

securities which have the highest RTV. The negatively correlated securities we

found that- Aftab, Confidence, Global, Purabi, Uttara, which are also the

securities with the highest RTV. So, now its simple to chose.

Global Insurance, Purabi General Insurance and Uttara Bank are chosen

for investing. Now, we will go for deriving the optimal risky portfolio.

Optimal risky portfolio will bring out the weights of making investment to

each security.

We now derive the covariance of the chosen securities.-

The HPR and the risk free rate used here is converted to daily for the

ease of the calculation. So the excess return is also the daily. The Sum



product of the covariance in respect with the given weight is driven out in

the yellow marked rows. The sum of which will be the Average Standard

deviation of the portfolio. It has been shown in the portfolio statistics

below. The portfolio average return is the sum product of the daily HPR of the

securities and the given weights.

Now, with Microsoft Excel solver, we have to derive various weights in

respect to minimum standard deviation with various portfolio returns. The RTV

will be derived by dividing the portfolio return and the respective standard

deviation of that portfolio with those specific weights. The highest RTV is

derived as 0.37% against highest RTV of .08667 with a standard deviation of

4.3%. we have to invest 34.1% in Global Insurance, 45.4 % in purabi general

insurance and 20.5% in Uttara bank to get that return on risky securities.



Now we shall derive the Capital allocation line for the chosen

portfolio. The capital allocation lines return is the return against the

highest slope with the derived Standard deviation of each security. So the

Highest RTV of 0.08667 is multiplied with the respective standard deviation to

get the CAL line. This RTV is the slope of the best feasible CAL. The CAL

returns are illustrated below.

Now we are able to draw the Cal line with the efficient frontier of the

investment. It is the optimal Risky Portfolio. The efficient frontier will

show the opportunity set of the investment to the securities with the optimal

capital allocation. The weights will get the highest RTV. The maximized slope

of the CAL with the efficient frontier gives us the optimal risky portfolio.



0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

Efficient frontier CAL

Standard Deviations

Return

Figure: Capital Allocation Line with Efficient frontier .

Now, we should consider that the investment in only risky securities is

too much volatile. So we should consider investing on the risk free and risky

securities in a weight that minimizes our risk and ensuring our return. The

portfolio with both risky and risk free assets are called Optimal Risky

Portfolio. The risk aversion of the investor is an important consideration

here. I assume that investors are not that risk averse. The risk Aversion = 4

on the scale of 5. The formula and the calculation of Microsoft excel brings

out that, we should invest 50.8% on the risky assets and 49.2% on the risk

free assets. This is because the return on risky assets is not that much

greater than the risk free assets.



This also brings out the weights of the investment on each risky

securities which will bring the desired return on the optimal complete

portfolio.

Now we are able to derive the risk of the complete portfolio and the

excess returns that the complete portfolio gives in return. It is now

significant that the slope of this complete portfolio is exactly the same of

the optimal risky portfolio. This means that with this allocation, we’ll get

the highest return against lowest risk.



We should have a look on the annualized expected return of the Risky

portfolio. This is greater than the risky portfolio derived with arbitrary

equal weight. The return here is 277.796% and the return ten was 271%. Now,

we are able to derive the expected returns on the same utility with respect to

different risk. And then the CAL and efficient frontier with Utility curve is.

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%0.00%

200.00%

400.00%

600.00%

800.00%

1000.00%

1200.00%

Efficient frontier CALUtility curve

Standard Deviations

Return

Figure: CAL with Efficient frontier and Utility Curve.41 | P a g e

Prepared by- Roll: 1555, 1559, 1664, 1665, 1666

OCP

ORP

Opportunity set of risky

CAL


Till now, we’ve calculated and analyzed the historical risk returns of

the securities. The assumption was market is not efficient and volatile. Now

we calculate the CAPM which gives us the theoretical return of the securities.

CAPM assumes that market is efficient. CAPM works with the market BETA and the

market return. It brings out the return of the securities which these are

supposed to be if the market is efficient and the securities move along with

the market. The CAPM returns are calculated with, E(ri)= R(f)+(Rm-Rf)ϐ. Here

E(ri) is the CAPM return for the securities. Rm is the market return and the

Rf is the risk free return. This CAPM return is the excess market return of

the securities.

The CAPM returns and the BETA of the securities gives us the security

market line. This indicates that what will happen if the market is efficient

and the securities move along with the market.



-0.1000 0.0000 0.1000 0.2000 0.3000 0.4000 0.5000 0.60000.0000%

5.0000%

10.0000%

15.0000%

20.0000%

25.0000%

30.0000%

Security Market Line

Security Market Line ϐNow at the last part of our calculation and analysis we derive the

Single Index model returns of the securities. These are calculated both ways,

with standard error and without standard error. The standard error indicates

the company specific risk of the securities. We can see here the Ei or

standard errors are very large in portion which means that company specific

risk is the main contributing factor in security volatility.

Then we plot the SIM returns with Security market line and we see that

most of the SLM return points are placed in a very tiny bit higher point than

the SML line. This means that the securities are a little underpriced. The

SIM return brings out the Alpha. It is Significant that our chosen three



securities also have the highest alpha. So, it is better to invest on them

according to this calculation.

-0.1000 0.0000 0.1000 0.2000 0.3000 0.4000 0.5000 0.60000.0000%

5.0000%

10.0000%

15.0000%

20.0000%

25.0000%

30.0000%

Security Market Line SIM returnsϐ

End


Documents

Security Analysis & Portfolio Management