Portfolio Mgmt

LEONARDO DA VINCI Transfer of Innovation

Kristina Levišauskait÷

Investment Analysis and Portfolio Management

Leonardo da Vinci programme project

„Development and Approbation of Applied Courses Based on the Transfer of Teaching Innovations in Finance and Management for Further Education of Entrepreneurs and Specialists in Latvia, Lithuania and Bulgaria”

Vytautas Magnus University Kaunas, Lithuania

2010

Investment Analysis and Portfolio Management

Table of Contents

Introduction …………………………………………………………………………...4 1. Investment environment and investment management process…………………...7 1.1 Investing versus financing……………………………………………………7 1.2. Direct versus indirect investment …………………………………………….9 1.3. Investment environment……………………………………………………..11 1.3.1. Investment vehicles …………………………………………………..11 1.3.2. Financial markets……………………………………………………...19 1.4. Investment management process…………………………………………….23 Summary…………………………………………………………………………..26 Key-terms…………………………………………………………………………28 Questions and problems…………………………………………………………...29 References and further readings…………………………………………………..30 Relevant websites…………………………………………………………………31 2. Quantitative methods of investment analysis……………………………………...32 2.1. Investment income and risk………………………………………………….32 2.1.1. Return on investment and expected rate of return…………………...32 2.1.2. Investment risk. Variance and standard deviation…………………...35 2.2. Relationship between risk and return………………………………………..36 2.2.1. Covariance……………………………………………………………36 2.2.2. Correlation and Coefficient of determination………………………...40 2.3. Relationship between the returns on stock and market portfolio……………42 2.3.1. Characteristic line and Beta factor…………………………………….43 2.3.2. Residual variance……………………………………………………...44 Summary…………………………………………………………………………...45 Key-terms………………………………………………………………………….48 Questions and problems…………………………………………………………...48 References and further readings…………………………………………………...50 3. Theory for investment portfolio...