Sheet1My Required Rate of Return is based on return to be greater .docx

Sheet1My Required Rate of Return is based on return to be
greater than that generated by S&P 500 index. The only
constranit is not to invest in tabacco and oil stocks.Based on
above the following stocks were selectedSr No Stock Name
Ticker SymbolPrice Today 20 November 2014Beta1Accenture
plc ACN79.931.282Air Products & Chemicals Inc.
(APD)134.51.323American Express Company
(AXP89.71.184American International Group, Inc.
(AIG)55.241.425Analog Devices, Inc. (ADI)49.991.196Bank of
America Corporation (BAC)16.951.927Avery Dennison
Corporation (AVY)47.791.038Caterpillar Inc.
(CAT)102.511.64http://finance.yahoo.com/q/ks?s=ACNhttp://fi
nance.yahoo.com/q/ks?s=APDhttp://finance.yahoo.com/q/ks?s=
AXPhttps://finance.yahoo.com/q/ks?s=AIGhttps://finance.yahoo
.com/q/ks?s=BAChttp://finance.yahoo.com/q/ks?s=AVYhttp://fi
nance.yahoo.com/q/ks?s=YHOO+Key+Statisticshttp://finance.y
ahoo.com/q/ks?s=CAThttp://finance.yahoo.com/q/ks?s=ACN
Sheet2Sr No Stock Name
Ticker SymbolPrice Today 20 Sept 2014Price Once year ago 19
Sept 2014DividentsReturn generatedReturn in percentageReturn
of S&P 500 IndexPerformace better than S&P 500
Index1Accenture plc
ACN79.9375.631.866.168.14%16.72%No2Air Products &
Chemicals Inc.
(APD)134.5107.272.9630.1928.14%16.72%Yes3American
Express Company
(AXP89.776.730.9513.9218.14%16.72%Yes4American
International Group, Inc.
(AIG)55.2449.410.4756.30512.76%16.72%No5Analog Devices,
Inc. (ADI)49.9947.021.454.429.40%16.72%No6Bank of
America Corporation
(BAC)16.9514.540.082.4917.13%16.72%Yes7Yahoo(YHOO)40.

9331.0309.931.90%16.72%Yes8Caterpillar Inc.
(CAT)102.5185.530.8817.8620.88%16.72%YesReturn on S&P
500 IndexSr NoNamePrice Today 26 April 2014Price Once year
ago 25 April 2013DividentsReturn generatedReturn in
percentage1S&P 500
Index2010.41,722.340288.0616.72%Portfolio returnTotal
invetsment USD80,000 divided equally in all stocksSr
NoStockNo of shares purchasedPrice of share nowValue of
SharesTotal divident1Accenture plc
132.222662964479.9310568.5574507471245.93415311382Air
Products & Chemicals Inc.
93.2227090519134.512538.4543674839275.93921879373Ameri
can Express Company
130.327121073989.711690.3427603284123.81076502024Ameri
can International Group, Inc.
202.388180530355.2411179.923092491496.13438575195Analo
g Devices, Inc.
212.675457252249.9910631.6461080391308.37941301576Bank
of America Corporation
687.75790921616.9511657.496561210555.02063273737Yahoo3
22.26877215640.9313190.460844344208Caterpillar Inc.
116.9180404536102.5111985.2683269028102.8878755992Total
93,442.151,208.11Starting Value80000Ending
Value93,442.15Dividents1,208.11Return14,650.26Percentage
return18.3%Sr No Stock Name
Ticker Symbol Beta
ValueWeightWeighted beta1Accenture plc
ACN1.2210138.314374353710%0.1241681442Air Products &
Chemicals Inc.
(APD)1.3413986.147599713414%0.18814275983American
Express Company
(AXP1.1113457.553734343614%0.14995940424American
International Group, Inc.
(AIG)1.3512541.919805589313%0.16997396015Analog

Devices, Inc.
(ADI)1.2112033.699976597212%0.14617367126Bank of
America Corporation
(BAC)1.9512988.599348534213%0.25426204567Yahoo(YAHO)
0.912028.698664027712%0.10867903158Caterpillar Inc.
(CAT)1.6412437.923250564312%0.204774712899612.8567537
2341.3461337291My Initial Investment was an amount of
$80,000.00. I chose to invest in 8 different securities. At the
end of a one year period my portfolio value is $93,442
representing a gain of 18.3%.The said return meets my return
requiremnts i.e. return is greater than that generated by the S&P
500 index.
Sheet3
Running head: ASSIGNMENT TITLE HERE
1
PAGE
3
ASSIGNMENT TITLE HERE
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APA style rules are used in this template, the purpose of the
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the paper. The student will need to refer to the APA manual for
other format directions. A sample reference page is included

below; however, this page includes special spacing and
formatting. The examples on the following page include
examples taken directly from the APA manual.
References (Samples)
Daresh, J. C. (2004). Beginning the assistant principalship: A
practical guide for
new school administrators. Thousand Oaks, CA: Corwin.
Herbst-Damm, K. L., & Kulik, J. A. (2005). Volunteer support,
marital status, and the survival times of terminally ill patients.
Health Psychology, 24, 225-229. doi:10.1037/0278-
6133.24.2.225
U.S. Department of Health and Human Services, National
Institutes of Health, National Heart, Lung, and Blood Institute.
(2003). Managing asthma: A guide for schools (NIH Publication
No. 02-2650). Retrieved from http://www.nhlbi.nih.gov/
health/prof/asthma/asth_sch.pdf
Investment Policy Statement
Introduction
The purpose of this Investment Policy Statement is to establish
a relationship and understanding between the Investor and the
Investment Manager i.e. M/s Eilen (Referred to as the Investor)
and Mr. Jack Daniel (Referred to as Investment Manager). The
understanding developed will be related to the overall
investment objectives more specifically her his risk return
objectives . The document further intends to establish policies
and the procedures which shall apply to investor’s portfolio of
investments.
The document will:
· Establish the objectives, expectations and guidelines regarding
the investments that are made by the Investment
Manager(Agent) on behalf of the Investor (The Principal);
· Establish an overall guideline on assets that are permitted for

investment specifically the class of allocations and the level
risk tolerance of the investor;
· Establish effective means of communication between the
investor and the investment advisor.
The statement was developed by taking into account a number
of factors including client situation, requirements and risk
tolerance. The statement it must be noted is not a contract and
serves only as a means of guidance for both the investors and
the investment advisor.
The Portfolio
The investment manager will be responsible to actively manage
the portfolio of the investor. Hence strategy for the portfolio
will be active allocation of assets. Further as per investor
specific instructions the investments will be made in US Listed
stocks that the Investment Manger believes are expected to beat
the S&P 500 index by the advisor. As a result the portfolio is
expected to be highly liquid.
Investment Objectives
The investment objectives of the investor include return
generation and liquidity:
· Return generation: The Investor intends own portfolio of
assets that generates a return that shall exceed that of the S&P
500 index. The key aim therefore is to generate return in excess
of that of the S&P 500 index.
· Liquidity: The investor further intends to hold a portfolio of
assets that can be easily liquidated at any particular point and
hence generation of a portfolio with high level of liquidity
defined as ability to dispose of an asset without giving a
discount on the market value is a key objective.
Risk tolerance:
The investor risk tolerance was established by looking at his
age, marital status, financial condition and future liquidity
requirements. More specifically factors taken into consideration
were his existing investments, his financial commitments,
health and family status and other specific circumstances.

The Investor it is established recognizes that a positive return
can only be generated when some degree of risk is undertaken.
The risk is measured by the degree of volatility.
The portfolio as agreed between the parties will be copies of
securities that Investment Manager believes to outperform the
S&P 500 index and as a result will have beta that is higher as
compared to the market and hence a higher degree of
variability.
The equity component of the portfolio will consist majorly of
the large cap stocks that have a beta greater than one. This
component of the portfolio will be actively managed to keep the
overall risk exposure in check while at the same time ensuring
that overall return objective is not compromised.
Investment Horizon
The investment horizon of the said portfolio as agreed between
parties is two years. Capital values are expected to fluctuate
during the horizon and investor understands there is a
possibility of capital loss.
Investment Limitations:
The manager understands that only restriction when selecting
the stocks to invest in pertains to stocks not belonging to the
tobacco and oil industry.
The investor has further directed the Manager to execute all his
trades through a specific broker “agreed separately” and
understands that any risk in execution due to the use of the said
broker is his own.
Biblography
Unknown. (2014). [online] Retrieved from:
http://www.ewp.rpi.edu/hartford/~youneh/INVII/Week%202/Inv
estment%20Policy%20Statement/JD%20Powers/Investment%20
Policy%20Statement.pdf [Accessed: 5 September 2014].
Unknown. (2014). [online] Retrieved from:
http://www.ewp.rpi.edu/hartford/~youneh/INVII/Week%202/Inv
estment%20Policy%20Statement/JD%20Powers/Investment%20

Policy%20Statement.pdf [Accessed: 5 September 2014].
STEP 3- Portfolio Findings Paper – 3-5 pages - RUBRIC AND
GUIDELINE
0 /40
(40 points)-
RUBRIC:
So far, as an investor, you have already worked on your
portfolio project in part 1 (portfolio descriptionhas explained
in detail your selection and proportion of securities) and part 2
(portfolio spreadsheet has recorded analysis of each investment)
For part 3, you are supposed to discuss in detail the portfolio
management approach used, the results, the analytical findings
and the recommendations for future portfolio construction and
management.
The grading rubric (grade break down) for part 3 of the
Investment Project is broken down
Portfolio Findings Paper 40 overall points
Filing Convention /Cover page/ APA Style of Writing: 4
points-
The portfolio management approach/other approaches used: 15
points
The results, the analytical findings and the recommendations:
15 points- Please try to write the whole paper in essay form
while giving the headings and sub-headings for your portfolio
findings while answering the questions in the guideline
Conclusion and References where I think you add more
information on the topic while concluding this project: 6/6
points TOTAL 40 POINTS FOR PART 3
GUIDELINE: The suggested questions to answer for part 3
Briefly discuss the management approach to the investor’s
portfolio, then the construction, results and lastly the findings
with any recommendations.
Steps may include: Commit to investing over the long term –

Determining the Appropriate Asset Allocation – Understand the
different kinds of stocks and bonds- Reassessing Portfolio
Weightings- The performance and stability of your portfolio
with reference to following questions: Is the portfolio
favorable or not? Does it continue to generate the required and
expected rate of return? Is it a well-diversified portfolio,
minimizing risk and maximizing return? Do the selected
securities continue to exceed the expected rate of return? Do
you think you may use the excess capital to purchase more
equities and build up the portfolio?
Portfolio Findings Paper may include the following:
· Table of Contents…………………………………1
I. Portfolio Description……………………………2
II. Explanation of Management Approach….2
III. Portfolio Construction………………………….3
IV. Risk and Return Analysis……………………...4
V. Impact on Strategy……………………………….4
VI. Future Portfolio Recommendations………4
· Works Cited…………………………………………5
The following questions you may like to answer in your
findings:1- Is your portfolio management approach strategic?
Is it based upon solid analytical principles so that a portfolio
model can be adapted to fit your needs as an investor? Are you
going to implement a passive or aggressive strategy from a
securities investment viewpoint? Are there pros and cons
associated with this investment strategy? As an investor, do you
have a sound, well rounded investment strategy distributed
between stock, bonds, and tangible assets?
2- Does it implement a workflow that maximizes value, and
minimizes any stress and risk to you as an investor?
3- Does the objective of the portfolio aim to provide long-term
capital growth and income? How?
4- Is Risk tolerance during the compounding period is moderate
giving way to a low risk tolerance during the retirement/income
period?
5- Have you constructed your portfolio using the

“traditional” portfolio management approach which according
to Gitman, “emphasizes balancing,” a portfolio by diversifying
investments into a wide variety of common stocks and bonds?
NOTE: This approach is generally chosen if the investor is not
a professional financier (hence unfamiliar with quantitative
driven models) and because lowering correlated holding has
been proven to be effective at reducing risk over long periods
of time, ("Beginners' Guide to Asset Allocation, Diversification,
and Rebalancing"). It is believed that diversification over
approximately 40 securities is sufficient to eliminate all
diversifiable risk, (Gitman, 2011). Inter-industry investment is
a key tenant of the portfolio construction methodology,
(Gitman, 2011).
6- Are your findings based on waiting for one year to review
the portfolio or based on your review, say, after three months
to see how it is performing?
7- Is the portfolio prepared to encompass the following?
· Growth Stage: ages 29-50 (starting age to Transition Stage).
· Transition Stage: ages 50-60 (period between Growth Stage
and Withdrawal Stage).
· Withdrawal Stage: ages 60-100 (retirement age to life
expectancy).
Recommendations based on the following questions:
1- What are your recommendations for future portfolio
construction and management?
2- What are the other recommendations to conduct additional
analytical findings ? such as the Sharpe, Treynor, and Jensen
measures in order to evaluate the investment portfolio’s return
with a risk-adjusted, market-adjusted rate of return, and to make
revisions as necessary?
3- Does your paper provide the approach used to construct a
portfolio for an individual who hopes to achieve high potential
long-term returns?
4- Does most of your trading activity involve marginal
adjustments to a diversified portfolio with growth in mind to

“limit losses and reduce the fluctuations of investment returns
without sacrificing too much potential gain,” ("Beginners'
Guide to Asset Allocation, Diversification, and Rebalancing")?
5- Are you more risk-averse then others simply by personality?
Do you think different investment goals have different risk-
acceptance levels?
6- Is the return impressive based on the fact that a decent gain
has been made when the market has been relatively flat? When
the market picks up, do you expect the gain on these securities
to increase as well?
7- Is it necessary to include a safety blanket on each of the
stages of the investment in your portfolio? For example, Bonds
are considered to play a key part of diversifying the portfolio
and balance out the risk in the early stages of the portfolio,
while attributing to the stowing away of assets in the later part
of the portfolios as well. My opinion!
8- Is the construction of your portfolio based heavily on long-
term growth? Is income as important for you as capital growth?
Sometimes, Income may not be a priority for an investor.
9- Have you used the tools in the textbooks, and resources
online? Did it help to construct a portfolio that can often beat
the market? Do you believe in efficient market hypothesis?
10- Do you believe that your portfolio is solidly constructed?
Is it based on one of the most important principles in investing
that past performance has no direct link to future performance?
Justify in your concluding remarks.
6

SAMPLE 2-FINC340
Portfolio-Findings Paper- Step 3
The process of forming a retirement investment portfolio has
been challenging and instructive. I chose a passive management
approach, realizing that I do not have the interest in becoming
well enough versed in the stock and bond markets to actively
manage my portfolio. There are many things to consider when
forming a portfolio; the first of which must be how much risk
one is willing to take. Once that is established, then one can
choose an actively or passively managed portfolio and a top
down or bottom up portfolio. The availability of index funds is
perfect for someone like me who does not know a great deal
about the stock market, and is not willing to spend time
acquiring the knowledge that would be required to build a
portfolio made up of individual stocks and bonds. Like
everything else in America, there are so many choices one can
make! I settled on a passively managed portfolio made up of
index stock and bond funds of varying risk levels, and a small
allocation of the portfolio in a money market account. How this
performs will depend in large part on the macro and micro

economy in the years to come.
After the financial crisis that began in late 2007, the stock
market fell and people who were invested in the stock market
saw their portfolios decline. The micro environment was
affected by the rising number of mortgage defaults, particularly
in the sub-prime mortgage industry, coupled with risky
investments and lax regulation which led to the demise of some
and the financial decline of other companies and industries on
Wall Street. This led to the downturn in the real estate and
home building industries and the loss of millions of jobs.
Anyone who invested in these industries suffered losses in their
portfolios. The macro environment suffered as well. The
failures of many companies due to the downturn led to high
unemployment, which meant more government spending on
unemployment benefits, and less tax receipts. Credit markets
froze. A diversified portfolio that contained stocks that were
and were not sensitive to the business cycle would not have
declined as much as stocks invested only in business cycle
sensitive industries (for example jewelry). The macro
environment is also where you will see demand and supply
shocks. These can be positive or negative, and can be events
like tax reduction, an increase in the money supply, an increase
in exports, (positive) or OPEC raising oil prices, increased
inflation caused by an increase in the money supply, (negative)
etc. (Zvi Bodie, 2010)
Another determinant of stock performance is due to the
competitive situation that a company faces. Michael Porter said
there are five areas of competition which are the “threat of entry
from new competitors, rivalry between existing competitors,
price pressure from substitute products, the bargaining power of
buyers, and the bargaining power of suppliers”. (Zvi Bodie,
2010) An actively managed portfolio must contain an analysis
of the companies included with regard to these five areas. An
additional area that a person with an actively managed portfolio
needs to watch is the leading indicators that show how parts of
the economy are trending. Examples are new orders for

manufactured goods or the number of permits issued for new
housing units. (Zvi Bodie, 2010) These will give an indication
how stocks may perform. More specifically, a fundamental
analysis should be done on each company in the portfolio. This
includes an examination of earnings and dividends and a risk
evaluation, which will determine what the proper stock price
should be. (Zvi Bodie, 2010)
Interest rates play a key role in the performance of your
portfolio, and should be one of the things taken into
consideration when deciding on the assets the portfolio will
contain. According to the text, investors can look at several
factors that will affect interest rates: the savings rate from US
households, funds businesses require for capital projects,
actions of the Federal Reserve, and inflation. (Zvi Bodie, 2010)
My portfolio contains 20% index bond funds, so if I was an
active manager, I would be focusing on these areas. If interest
rates were to go up, I would not want to maintain a lot of assets
in fixed income funds.
The Sharpe Ratio and the Treynor Measure can both be used
to measure the performance of a portfolio. The difference
between the two is that the Treynor Measure only measures
systematic risk, as it assumes your portfolio is diversified. The
Sharpe Ratio measures the total risk of your portfolio. If a
portfolio is adequately diversified, one should get the same
result using either of these performance measures. (Hall)
Investors who buy individual stocks may use one or more
Stock Analysis Models. The Dividend Discount Model shows
how to estimate what the dividend will be at the end of the year,
using dividend, price, and required rate of return values. The
Price Earnings Multiple shows the ratio of the stock price to the
EPS. Forecasting the P/E Multiple can be difficult as there are
many macro and micro situations that can affect this estimate.
But you can use this ratio to compare different firms expected
rates of growth; a very helpful process if you are actively
managing your portfolio. If a firm does not pay dividends, an
investor can use the free cash flow model, which shows what

cash is available after capital investments are deducted.
Since I did not plan to actively manage my portfolio I have
not used many of the performance measures and analysis models
discussed above. I chose a passively managed portfolio with the
majority of investments in index funds, both stock and bond.
The diversity of the portfolio minimizes the risk, as evidenced
by the small overall portfolio standard deviation. Exploring the
options while analyzing what path I would take was eye
opening. There are so many things to consider and so many
choices available. I understand now why people choose to have
an investment manager. There may be a cost to the investor in
terms of the amount of money given for investment and the
amount actually invested, but the investor leaves the work to
someone whose job it is to know the market and that also knows
how to react to macro, micro, and international events. That
said, I expect a normal return from my portfolio, barring any
serious dips in the economy. I believe that the returns and
minimal fees associated with this portfolio are well worth the
risk. I look forward to enjoying the results of this investment
many years from now!

Works Cited
Hall. (n.d.). Evaluation of Portfolio Performance. Retrieved 03
04, 2012, from www.cbe.wwwu.edu:
http://www.cbe.wwu.edu/Hall/MBA542/evaluation_of_portfolio
_performa.htm
Zvi Bodie, A. K. (2010). Essentials of Investments. New York:
McGraw-Hill/Irwin.
SAMPLE 1- PORTFOLIO FINDINGS PAPER (STEP 3)
I. TABLE OF CONTENTS
1
II. INTRODUCTION
2
III. PORTFOLIO MANAGEMENT APPROACH
2
IV. PORTFOLIO CONSTRUCTION AND ANALYSIS
3
V. PORTFOLIO RISK AND RETURN ANALYSIS
4
VI. RESULTS AND IMPACT
4
VII. ANALYTICAL FINDINGS
5
VIII. RECOMMENDATIONS FOR FUTURE PORTFOLIO
CONSTRUCTION AND MANAGEMENT
6
IX. SUMMARY
6
X. BIBLIOGRAPHY
7

I.INTRODUCTION: This report relays findings about my
chosen passive investment approach, and about the construction
and selection of securities for the portfolio. It is important to
understand the various classes of investments, how they
interact, and the risk-reward relationship among them: because
the key to successful investing lies in limiting risk. Investments
are financial commitments toward an expected profit, and
higher-expected profit carries higher-expected risk. Once
understood, the results can be measured and the positions
rebalanced to continue the strategy. Analysis of current socio-
economic forces reveals ideas for adapting and preparing for
market shocks of diversifiable and systemic risks. The question
is not whether we will encounter shocks, but instead how can
we overcome them and keep our head above water. Debt
investors receive a fixed claim against cash flows with a preset
expected return of principal at maturity: (Bodie, Kane, &
Marcus, 2010) of which exchange value diminishes as interest
rates rise. Equity investors purchase a proportional ownership
of income-generating assets forever: some with voting rights,
although stockholders don’t participate in day-to-day
operations, resulting in agency problems between management
and owners.
In my opinion, a good mix of debt, equities and cash comprise a
balanced portfolio. Although equity returns are volatile, they
may bring higher returns over time, whereas debt provides a
steady foundational return. Although profits are not guaranteed,
debt and equity investors enjoy limited liability for
organizational debts.
II.PORTFOLIO MANAGEMENT APPROACH: As a passive
manager, I bought and held a highly-diversified portfolio
without attempting to find mispriced securities, whereas active
managers attempt to improve performance” (Bodie, Kane, &
Marcus, 2010). I believe in efficient markets where security
prices reflect broad-investor value from all available
information. (Bodie, Kane, & Marcus, 2010) Once invested, I
will use technology to place automatic pre-set triggers for

buying and selling securities, to simplify management of the
portfolio. , I utilized computer technology to place pre-set
triggers to buy and sell securities automatically, so I do not
have to watch the market.
I used the Top-Down Method approach to manage an asset
allocation mix of 40% Debt, 50% Equities and 10% cash, while
pursuing a passive-investment strategy with a $100,000
investment. Although I am risk averse, I engaged in short-term
stock trading, enhanced by a well-diversified fund that mirrors
the S&P500 collection of stocks. While holding liquid and ultra
conservative money markets, T-bills and CDs over the short
term (< 1 year), I will not purchase and ladder long-term bonds
or CDs (> 1 year) until interest rates trade higher.
I manage the portfolio in the following fashion:
1. Weekday mornings: Watch CNN over breakfast to gain a
global perspective.
2. Relax while focusing on projects and enjoying life, until I
receive a trade alert that requires attention.
3. Weekends and holidays: Read Barron’s on Saturday mornings
and enjoy life.
4. Quarterly: Review financial statements and analyze
performance.
5. Semi-annually: Rebalance the portfolio following dividend
and coupon payments.
6. Annually: Conduct an In-depth portfolio plan review with
adjustments, while preparing tax returns.
III.PORTFOLIO CONSTRUCTION AND ANALYSIS:
EQUITIES (25% INDEXES): Index funds pool many stocks or
bonds together for a broad and diversified investment
opportunity, whereas derivative securities provide expected
payoff opportunities based on the performance of a separate
asset. While options provide the right to exercise a transaction,
I decline to invest in them at all, or in obligatory futures
contracts at this time. Results and analytical findings follow,
along with my recommendations for future portfolio
construction. EQUITIES (25% STOCKS): Because investing in

index funds is an easy way to earn returns from a proportionate
ownership of each stock that comprises it, I selected CLL CBOE
S&P 500 Index for its diversity and broad-market success.
Equities are residual claims of stock ownership with limited
liability, where companies either pay dividend income to
shareholders or they retain it to increase value. To increase
potential returns, I chose to take additional risk to invest in the
petro-energy sector that enjoys high-demand and low-supply
conditions. I selected Chevron (CVX on the New York Stock
Exchange). By using the Price to Earnings ratio (P/E) test, I
found Chevron to have the highest Earnings/Share (EPS) 13.44,
the highest dividend 3.24, and the highest PE ratio 8.06, among
the top American NYSE companies in the sector. The 52-week
price range was $86-$110: therefore, once positioned I set
automatic buy and sell triggers at 5% within the 52-week range:
Sell when the price reaches $99, and later buy when the price
reaches $90.30. (E-trade.com) DEBT (40%): Long-term bonds
carry greater interest-rate risk than shorter terms (David, 2011);
for this reason I restricted purchases to US T-bonds and bills
only. Bond yields move inversely to interest rate changes.
Ideally, we should purchase 10-30 year T-Bonds, with as little
as $100, during times of high interest rates to enjoy high
coupon income later when rates drop. With Futures, I’ll swap
steady coupons for LIBOR income without selling the bond,
when equities soar. When rates rise, I’ll add highly-rated
general Muni Bonds to the long-term mix, to enjoy full tax-free
income. CASH (10%): I purchased highly liquid short-term US
government T-bills available in $100 increments, where
earnings are free of local and state taxes. Rates are not
favorable at this time for any long-term purchases of T-Bonds
or Long-term Certificates of Deposit (CD). However, I
purchased a 6-month Bank CD whose default is protected by
FDIC insurance for up to $100,000 per account. (Bankrate.com)
DERIVATIVES (0%): Options, Forwards, Futures and Swaps
are restricted for the portfolio this year, although Futures Swaps
for LIBOR rates may become necessary to reduce interest-rate

risk on my bond positions as interest rates rise. No futures
contracts were purchased, although it will be advantageous to
mitigate interest-rate risk by swapping coupon rates for variable
London Interbank Offer Rates (LIBOR) with Futures Swaps
next year.
IV.PORTFOLIO RISK AND RETURN ANALYSIS: For a
passive investment strategy, I used the Investor Opportunity Set
to identify the Capital Allocation line holding rates of return for
my S&P500 risky position to my T-bill risk-free position. In the
1990s the S&P returned about 17%, although fund fees eroded
the figure (The Motley Fool)I estimate the expected return for
the S&P as 10%, and 1.5% for T-bills. By investing 100% in the
S&P alone, my risk premium equals 10%. By diversifying the
portfolio with 40% T-bills and 50% S&P, my risk is reduced to
1.25% as below:
E(rp) – rf = risk premium , then 10% - 1.5% = 8.5%, Then:
(S&P) , 10% (X 0.50 S&P) - 1.5% (X 0.40 T-bill)=
5% - 3.75% = 1.25% risk premium is reduced for my complete
portfolio
[Additionally, I will read Sharpe measures published on the e-
trade site, where a higher Sharpe measure indicates a better
reward per unit of volatility (Bodie, Kane, & Marcus, 2010)
]V.RESULTS AND IMPACT: Because decisions about my
investment strategy were carefully conceived and formally
planned, I found it was easy to resist the urge to invest more
time and money on random opportunities. Although money may
be left on the table, my commitment to avoiding irrational
moves empowers me to have patience. Clearly, equities are
becoming bullish, and I expect to add another stock to the mix
by next month. The portfolio is very conservative, and I remind
myself that my expectation is to outperform cash deposits and
to mirror the S&P 500 index, yet my strategy includes picking
individual stocks to keep the process fun. I am satisfied the plan
is stable and am pleased with the results so far. My portfolio is
easier to manage than I thought which requires simple
scheduled tasks to monitor and evaluate its performance.

Because coupon and dividend income is paid semi-annually, I
only need rebalance the portfolio at that time, unless stock
trades occur that require depositing surplus proceeds,
rebalancing, and resetting triggers for the next round. Annually,
I plan to engage in Future Swaps to increase bond income and to
further mitigate risk.
VI.ANALYTICAL FINDINGS: I’ll analyze financial ratios
using SEC docs on EDGAR to compare Chevron and other
stocks against industries. When interest rates rise, I will shop
CD and money market rates throughout Washington, DC, and
will ladder them in addition to purchasing long term T-bonds.
(EDGAR Online in partnership with Yahoo! Finance)
The following table shows detailed positioning of securities to
match my asset allocations. Within each class, however, long-
term positions were not purchased because interest rates are
currently depressed. Including trading fees, the fully-invested
portfolio returned $3,167 in profit by August 20/2012, while
limiting volatility over the month of February. Coupon and
dividend income is expected at the end of June.
PORTFOLIO PERFORMANCE ( Feb/1/2012 - Mar/1/2012) in
US dollars
Asset Class
Security
$100,000 Allocation
Initial Investment
Price 2/1/12
Units #
Trade fees
Price 3/1/12
Profit/Loss
Equities: (50%)
$ 50,000

CLL (CBOE S&P500)
$ 25,000
$ 484
52
$ (9.99)
$502
$ 920
Chevron Common
$ 25,000
$ 100
250
$ (9.99)
109
$ 2,240
Debts: (40%)
$ 40,000

T-Bills (52 Week)
$ 40,000
40
$ -
$ -
T-Bonds (10-30 year)
$ -
N/A at this time
Cash: (10%)
$ 10,000
Money Market Acct.
$ 5,000
$ 5,000
1
$ -

0.15%
$ 8
CD, Short-term (6 mo.)
$ 5,000
$ 5,000
1
$ -
0.85%
$ -
CD, Long-term (5 years)
$ -
N/A at this time
PROFIT/LOSS
$ 100,000
$ 100,000
$ 3,167

Overall Portfolio Value (YTD March 1, 2012)
$ 103,167
Positive
Value
PORTFOLIO REBALANCING: It is too early to make any
rebalancing changes, as I am pleased with the current results of
the portfolio. My triggers are set for the Chevron stock, and
they have not been called into action yet. My profits are on
paper only, but at some point I will take profits and move the
surplus to open more CDs according to plan. Understandably,
no dividends or coupon payments have been paid, and the
political crisis with Iran is enhancing my profits by driving the
price of petroleum higher every month in the U.S. Arbitrage
opportunities are not a factor in this project, as I do not intend
to take additional risk to find unusual returns, nor do I intend to
spend much time managing the portfolio.
VII. RECOMMENDATIONS FOR FUTRE PORTFOLIO
CONSTRUCTION AND MANAGEMENT: E-trade is not as
flexible as I expected, and the investment selections are a bit
limited, but their trading fees are very low and they offer a good
electronic dashboard. Surprisingly, there are too many choices
for investing in the S&P500, with varying prices and disparate

results, although the CLL appears to be a great choice. CD and
money market rates remain down and flat, although equities are
beginning to boom. Although I am positioned to reap the same
rewards as the S&P, I didn’t notice the potential of investing in
the technology-heavy NASDAQ index, and I may add it to the
mix next year. Mistakenly, I thought petroleum stocks moved in
opposition to interest rates, and I see Chevron is not a good
hedge for my bonds. Recently, I studied Hershey Company
(HSY, New York Stock Exchange) and the confectioners’
industry to discover candy outperforms the S&P regularly, has a
low barrier to entry and their products are virtually recession
proof. (The Hershey Company) Next year, I will analyze
industries to find recession-proof sectors to hedge diversifiable
and systemic risks.
SUMMARY : The performance and stability of the portfolio is
favorable, as electronic-trading triggers remain in place for
stocks, and all positions cover the intended asset allocation mix.
Monthly rebalancing is not required, and at least one other stock
should be added next month to hedge future interest rate risk for
my bonds. When interest rates rise, long-term positions will be
purchased. The portfolio is very low in risk and I am well
positioned to excel whether interest rates rise or not. Although
there is no guarantee of future results, I expect to outperform
the S&P 500 index. Intuitively, I will pursue green technologies
and socially-responsible US stocks in the future I plan to
conduct my own financial analysis by using SEC reports
through EDGAR online, Yahoo!Finance. (EDGAR Online in
partnership with Yahoo! Finance)
I expect to have fun succeeding in making money while keeping
my head above water.
Bibligraphy
Bankrate.com. (n.d.). Bankrate.com. Retrieved March 6, 2012,
from http://www.bankrate.com/partners/sem/cd-

rates.aspx?prods=13,14,19
Bodie, Z., Kane, A., & Marcus, A. J. (2010). Essentials of
Investments (8th ed. ed.). New York: McGraw-Hill/ Irwin.
David, F. R. (2011). Strategic Management: Concepts and
Cases, 13th edition (13th ed.). New York: Prentice Hall.
EDGAR Online in partnership with Yahoo! Finance. (n.d.).
Retrieved January 22, 2012, from
http://finance.yahoo.com/q/is?s=PFE+Income+Statement&annua
l
E-trade.com. (n.d.). Retrieved March 6, 2012, from
https://us.etrade.com/investing-trading/mutual-funds
The Hershey Company. (n.d.). Corporate Social Responsibility
Scorecard 2010. Retrieved February 11, 2012, from The
Hershey Company:
http://www.thehersheycompany.com/assets/pdfs/hersheycompan
y/scorecard2010.pdf
1

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