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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. 0.202225
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. 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%
0.31530147
0.230275
Trade off
2.00%
0.31172007
0.22945
Trade off
3.00%
0.30815641
0.228625
Trade off
4.00%
0.30461112
0.2278
Trade off
5.00%
0.30108483
0.226975
Trade off
6.00%
0.29757822
0.22615
Trade off
7.00%
0.29409201
0.225325
Trade off
8.00%
0.29062691
0.2245
Trade off
9.00%
0.2871837
0.223675
Trade off
10.00%
0.28376318
0.22285
Trade off
11.00%
0.28036616
0.222025
Trade off
12.00%
0.27699353
0.2212
Trade off
13.00%
0.27364618
0.220375
Trade off
14.00%
0.27032504
0.21955
Trade off
15.00%
0.2670311
0.218725
Trade off
16.00%
0.26376538
0.2179
Trade off
17.00%
0.26052893
0.217075
Trade off
18.00%
0.25732287
0.21625
Trade off
19.00%
0.25414834
0.215425
Trade off
20.00%
0.25100654
0.2146
Trade off
21.00%
0.2478987
0.213775
Trade off
22.00%
0.24482614
0.21295
Trade off
23.00%
0.24179018
0.212125
Trade off
24.00%
0.23879224
0.2113
Trade off
25.00%
0.23583374
0.210475
Trade off
26.00%
0.23291621
0.20965
Trade off
27.00%
0.2300412
0.208825
Trade off
28.00%
0.22721032
0.208
Trade off
29.00%
0.22442524
0.207175
Trade off
30.00%
0.22168769
0.20635
Trade off
31.00%
0.21899945
0.205525
Trade off
32.00%
0.21636236
0.2047
Trade off
33.00%
0.21377831
0.203875
Trade off
34.00%
0.21124925
0.20305
Trade off
35.00%
0.20877718
0.202225
Trade off
36.00%
0.20636414
0.2014
Trade off
37.00%
0.20401223
0.200575
Trade off
38.00%
0.20172359
0.19975
Trade off
39.00%
0.19950039
0.198925
Trade off
40.00%
0.19734485
0.1981
Trade off
41.00%
0.19525921
0.197275
Trade off
42.00%
0.19324573
0.19645
Trade off
43.00%
0.19130669
0.195625
Trade off
44.00%
0.18944437
0.1948
Trade off
45.00%
0.18766106
0.193975
Trade off
46.00%
0.18595904
0.19315
Trade off
47.00%
0.18434055
0.192325
Trade off
48.00%
0.18280781
0.1915
Trade off
49.00%
0.18136299
0.190675
Trade off
50.00%
0.18000823
0.18985
Trade off
51.00%
0.17874555
0.189025
Trade off
52.00%
0.17757693
0.1882
Trade off
53.00%
0.17650423
0.187375
Trade off
54.00%
0.17552921
0.18655
Trade off
55.00%
0.17465351
0.185725
Trade off
56.00%
0.17387864
0.1849
Trade off
57.00%
0.17320593
0.184075
Trade off
58.00%
0.17263659
0.18325
Trade off
59.00%
0.17217164
0.182425
Trade off
60.00%
0.17181194
0.1816
Trade off
61.00%
0.17155813
0.180775
Trade off
62.00%
0.17141069
0.17995
Trade off
63.00%
0.17136991
0.179125
Trade off
64.00%
0.17143584
0.1783
Trade off
65.00%
0.17160838
0.177475
Trade off
66.00%
0.17188719
0.17665
Trade off
67.00%
0.17227176
0.175825
Trade off
68.00%
0.1727614
0.175
Trade off
69.00%
0.17335519
0.174175
Trade off
70.00%
0.17405209
0.17335
Trade off
71.00%
0.17485086
0.172525
Trade off
72.00%
0.1757501
0.1717
Trade off
73.00%
0.17674829
0.170875
Trade off
74.00%
0.17784376
0.17005
Trade off
75.00%
0.17903472
0.169225
Trade off
76.00%
0.18031928
0.1684
Trade off
77.00%
0.18169545
0.167575
Trade off
78.00%
0.18316118
0.16675
Trade off
79.00%
0.18471433
0.165925
Trade off
80.00%
0.18635271
0.1651
Trade off
81.00%
0.18807409
0.164275
Trade off
82.00%
0.18987622
0.16345
Trade off
83.00%
0.19175683
0.162625
Trade off
84.00%
0.19371362
0.1618
Trade off
85.00%
0.19574431
0.160975
Trade off
86.00%
0.19784663
0.16015
Trade off
87.00%
0.20001831
0.159325
Trade off
88.00%
0.20225713
0.1585
Trade off
89.00%
0.20456087
0.157675
Trade off
90.00%
0.20692738
0.15685
Trade off
91.00%
0.20935452
0.156025
Trade off
92.00%
0.2118402
0.1552
Trade off
93.00%
0.2143824
0.154375
Trade off
94.00%
0.21697912
0.15355
Trade off
95.00%
0.21962843
0.152725
Trade off
96.00%
0.22232846
0.1519
Trade off
97.00%
0.22507737
0.151075
Trade off
98.00%
0.22787339
0.15025
Trade off
99.00%
0.23071482
0.149425
Trade off
0.2336
0.1486
Optimal Combination of the Risk Assets
54.01%
0.1755236
0.186545
0.2166193
2.
The paper uses the…
Reference
Graham, J. Smart, S.B. & Megisson, W.L. (2010). Corporate Finance: Linking Theory to What Companies Do, 3rd Edition. Cengage Brain.
Fox, J. (2009). Myth of the Rational Market. Harper Business.
Kieso, D.E., Weygandt, J.J. & Warfield, T.D. (2007). Intermediate Accounting (12th ed.). New York: John Wiley & Sons.
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