Part: 2

Overview of Dynamic Asset allocation

2.1 Asset allocation-a new dimension to portfolio performance

Different persons have different portfolio management needs, some want to maximize the return, some want to minimize risks with steady investment growth, some want constant earnings, and some others want to earn more spending least time. Dynamic asset allocation is one such portfolio management strategy which aims at maximizing the portfolio return by active management of portfolio components. To construct an asset allocation portfolio, one invests among various asset classes, such as stocks, bonds, cash and others. The returns of the asset classes tend to be affected by different factors and thus, face different risks. Establishing an appropriate asset mix is a dynamic process, and it plays a key role in determining portfolios overall risk and return. very important asset allocation strategy is dynamic asset allocation, with which investor constantly ad!usts the mix of assets as markets rise and fall and the economy strengthens and weakens. "nlike two other popular portfolio management strategies, strategic and tactical asset allocations strategies, dynamic asset allocation does not involve keeping a fixed investment ratio. Dynamic investors diversify their investments by investing in e#uities, mutual funds, index funds, currencies, derivatives and fixed income securities. They buy instruments which are rising $or are predicted to rise% and they sell instruments which are falling $or are predicted to fall%. lthough not common, many dynamic investors keep a reasonable proportion between high&return'high&risk instruments such as stocks and low&return'low&risk instruments such as treasury bonds. Evaluation of current trends and prediction of future trends on investments are very important with dynamic asset allocation. (nvestors can use a range of technical and fundamental analysis tools for this purpose. )uccessful dynamic investors are those who make right buy and sell decisions at right time. There are a few different strategies of establishing asset allocations, and there are outlined some of them and examined their basic management process.

Asset Allocation Strategy

)trategi c

Consta ntweighte d

Tactic al

Dynam ic

Insure d

Integr ated

Strategic Asset Allocation )trategic asset allocation is a method that establishes and adheres to what is a *base policy mix*. This is a proportional combination of assets based on expected rates of return for each asset class. +or example, if stocks have historically returned ,-. per year and bonds have returned /. per year, a mix of /-. stocks and /-. bonds would be expected to return 0./. per year. Constant-Weighting Asset Allocation: )trategic asset allocation generally implies a buy&and&hold strategy1 even as the shift in the values of assets causes a drift from the initially established policy mix. +or this reason, may choose to adopt a constant&weighting approach to asset allocation. 2ith this approach, portfolio can be rebalanced. +or example, if one asset were declining in value, would be purchase more of that asset, and if that asset value should increase, would sell it. There are no hard&and&fast rules for the timing of portfolio rebalancing under strategic or constant&weighting asset allocation. 3owever, a common rule of thumb is that the portfolio should be rebalanced to its original mix when any given asset class moves more than /. from its original value.

Tactical Asset Allocation 4ver the long run, a strategic asset allocation strategy may seem relatively rigid. Therefore, it may necessary to occasionally engage in short&term, tactical deviations from the mix in order to capitalize on unusual or exceptional investment opportunities. This flexibility adds a component of market timing to the portfolio, allowing you to participate in economic conditions that are more favorable for one asset class than for others. Tactical asset allocation can be described as a moderately active strategy, since the overall strategic asset mix is returned to when desired short& term profits are achieved. Insured Asset Allocation 2ith an insured asset allocation strategy, establish a base portfolio value under which the portfolio should not be allowed to drop. s long as the portfolio achieves a return above its base, try to increase the portfolio value as much as possible. (f, however, the portfolio should ever drop to the base value, invest in risk&free assets so that the base value becomes fixed. Integrated Asset Allocation 2ith integrated asset allocation there are considered both economic expectations and your risk in establishing an asset mix. (ntegrated asset allocation, on the other hand, includes aspects of all strategies, accounting not only for expectations but also actual changes in capital markets and risk tolerance. Dynamic Asset Allocation nother active asset allocation strategy is dynamic asset allocation, with which investor constantly ad!usts the mix of assets as markets rise and fall and the economy strengthens and weakens. 2ith this strategy investor sell assets that are declining and purchase assets that are increasing, making dynamic asset allocation the polar opposite of a constant&weighting strategy. +or example, if the stock market is showing weakness, one sell stocks in anticipation of further decreases, and if the market is strong, one purchase stocks in anticipation of continued market gains.

2.2 Importance of dynamic asset allocation

number of factors make dynamic asset allocation a viable strategy5 The cyclical moves of financial markets:

4ver a century of market history has clearly shown that dissimilar investment categories behave differently at different times in the economic cycle. The dynamic asset allocations challenge is to use technical and'or fundamental analysis to attempt to identify where the cycle are existed and what investment categories appear to have the strongest potential for appreciation.

6hart )ource5 7artin 8. 9ring, International Investing Made Easy, 7c:raw&3ill, ;ew <ork, ,=>,, p. ?-.

Increase in returns utilizing efficient investing decision:

This is a key reason that dynamic asset allocators do not have to be ,--. right to produce higher risk&ad!usted returns. (t is not uncommon for top&performing sectors to experience advances of /-. or more annually. 2hile the downside risk of some market sectors makes investing in these areas potentially dangerous in a fixed asset allocation strategy, dynamic asset allocation can harness their positive features and energize investor portfolios.

fficiency of the strategy with mutual funds:

"sing mutual funds in a dynamic asset allocation strategy further reduces risk by providing instant diversification across hundreds of securities within each asset class and allowing investors to move assets overnight between funds with little or no cost. !istence of "ear markets:

9roperly implemented, a dynamic asset allocation strategy should lessen an investor*s exposure to declining markets, blunting the impact of bear markets and preserving capital the ma!ority of prior gains. The more investors lose money in a down market, the more they lose valuable time and opportunity. Im#ortance of technology:

6omputers and on&line databases have given investment managers powerful tools for analyzing the market and developing complex dynamic allocation models. @y back testing these models against historical data, dynamic asset allocators have developed parameters and models, which indicate the asset classes that appear to be in sustained upward trends and should surpass other investments in the current market climate. :iven a working knowledge of the markets and cycles, today*s allocator can track a multitude of indicators to determine what people are doing in the market and which actions or data signal a fundamental change in economic climate. fter weighing the attractiveness of different asset classes, the money manager develops an asset allocation strategy, which distributes monies among different funds'asset classes based on return probabilities. 2hen the asset allocation model indicates changes in the attractiveness of an asset class, monies are moved to different funds.

2.3 Goals of dynamic asset allocation

Reducing risk & achieving higher risk adjusted return
The ob!ective of dynamic asset allocation is to reduce the risk or fluctuation in the value of an investor*s account while achieving higher returns than other investments with similar risk. The success of a dynamic asset allocation approach depends upon the ability of the investment advisor to identify those asset classes achieving the highest returns in each market phase. ;ot every investment decision will be perfect, but over a full market cycle, a dynamic asset allocation approach offers the potential for superior risk&ad!usted results, outperforming the impact of taxes and inflation, and leaving the investor with real growth.

Reducing risk without sacrificing performance

Dynamic asset allocation, like a AfixedA asset allocation strategy, seeks to reduce risk through diversification among different investment categories. "sing dynamic asset allocation, however, the investor selects or weights investments based on those categories with the greatest potential for superior returns, given current market conditions. The allocation of assets becomes dynamic && changing in response to market conditions and perceived opportunities for profit. (n studies of the performance of money managers, asset allocation decisions, rather than individual stock selection, have been shown to account for >- to =-. and more of a portfolio*s performance. Top performing managers are those who are invested in the best performing asset classes during different periods of the market.

2.4 Benefits of dynamic asset allocation

The practice of dynamic asset allocation $also called tactical or active asset allocation% has grown in recent years due to the success of various computerized market&timing techni#ues in analyzing market trends. These new technologies typically do not predict future market movements as much as they identify changes in trend direction and evaluate the risk of changes in a trend. 2ith this advanced technology, the asset allocation practitioner can respond dynamically to the market and significantly increase risk&ad!usted return over time by5

voiding bear markets and periods of under&performance in the various asset classes&&either by reducing or eliminating the allocation of the under& performing asset $e.g., getting out of the market%.

(ncreasing the allocation of asset classes currently in bull markets that are over&performing$

Dynamic asset allocation eliminates the key weakness found in the traditional, fixed approach that routinely allows periods of under&performance.

The portfolio mix of our generic 7odel 9ortfolios will shift dynamically over time to avoid periods of under&performance and move into investment types that are performing well. The net effect is reduced losses, lower volatility, higher average returns and a much stronger risk&ad!usted return.

Dynamic approaches to asset allocation are inherently more efficient than the traditional, fixed approach. They can significantly boost returns over time by #uickly reacting to changing market conditions for various asset classes and sectors, capturing periods of over&performance and avoiding periods of under&performance.

2.5 Dynamic trading strategy: ortfolio Ins!rance

9ortfolio insurances a dynamic trading strategy designed to protect a portfolio from market declines while preserving the opportunity to participate in market advances. )everal portfolio insurance methods exist and are used in practice. The best&known strategy involves trading in BrealC or BsyntheticC options. 2ith the introduction of exchange&traded index put options, it seemed theoretically possible for an investor to use these contracts to insure well&diversified portfolios, especially index funds. +or some reasons, most investors prefer not to use the option market for insuring the portfolios. 3ence it calls for the dynamic trading strategy replicating the option strategy to insure the portfolio. (n this strategy the manager replicates an option through a process of continually revising, in a prescribed manner, the proportions of a portfolio consisting of the underlying the asset and the risk&less asset. @esides, the complex nature of the underlying option pricing theory , the dynamic strategy calls for buying more stock when the market is going up and selling off some stock as the market goes down. The basic dynamic trading approach involves replicating the insured portfolios price with an ever&changing combination of positions in the underlying portfolio and the risk less asset. The proportions allocated to the underlying portfolio and the risk less asset change every period, so that the dynamic insurance strategy re#uires a significant amount of trading. 2e will see in the report that how the same replication is accomplished $approximately% with either a stock portfolio and short futures positions or the risk less futures. The number of units of the underlying portfolio that must be held long at any given moment will be given by the call options BdeltaC, the reciprocal of how many calls it takes to hedge a unit of the underlying portfolio. The call delta tells us the number of units of the underlying portfolio to hold. The amount of the risk less asset to hold is determined by subtracting the value of the held units of the underlying portfolio from the total value of the insured portfolio.

Part: 3
Market and economy Analysis

10

3.1 "#e process of stoc$ selection

To apply dynamic asset allocation on real data, / stocks need to be selected which will be counted as risky asset and treasury bill will be counted as risk free asset. The process of choosing the stocks has been done in D steps& . Economy analysis, @. (ndustry analysis, 6. 6ompany analysis.

3.2 %conomy and mar$et analysis

t pril ?-,-, ") E based ratings agency )tandard F 9oor*s $)F9% awarded @angladesh a @@& for a long term in credit rating which is below (ndia and well over 9akistan and )ri Ganka in )outh sia. nd, despite continuous domestic and international efforts to improve economic and demographic prospects, @angladesh remains a developing nation. 3owever, @angladesh is trying to decrease its dependency on foreign grant and loan. lthough two&thirds of @angladeshis are farmers, more than three #uarters of @angladeshs export earnings come from the garment industry, which began attracting foreign investors in the ,=>-s due to cheap labor and low conversion cost. (n ?--=E,fiscal years the industry exported ")H ,?.I billion worth of products where in ?--? the exported amount was ")H / billion. Jecently @angladesh has been ranked as the Kth largest clothing exporter by the 2T4 $The 2orld Trade 4rganization%. whereas, according to The Economist @angladesh is worlds third&largest clothes&export industry The industry now employs more than D million workers, =-. of whom are women. large part of foreign currency earnings also comes from the remittances sent by expatriates living in other countries. 4bstacles to growth include fre#uent cyclones and floods, inefficient state&owned enterprises, mismanaged port facilities, a growth in the labor force that has outpaced !obs, inefficient use of energy resources $such as natural gas%, insufficient power supplies, slow implementation of economic reforms, political infighting and corruption. ccording to the 2orld @ank, Aamong @angladeshs most significant obstacles to growth are poor governance and weak public institutions.A Despite these hurdles, the country has achieved an average annual growth rate of /. since ,==-, according to the 2orld @ank. @angladesh has seen expansion of its middle class $world*s fifty&fourth largest, !ust below of )ingapore F Lietnam%, and its consumer industry has also grown. (n December ?--/, four years after its report on the emerging A@J(6A economies
11

$@razil, Jussia, (ndia, and 6hina%, :oldman )achs named @angladesh one of the A;ext ElevenA, along with Egypt, (ndonesia, Lietnam and seven other countries. @angladesh has seen a dramatic increase in foreign direct investment. number of multinational corporations and local big business houses such as @eximco, )#uare, ki!, (spahani, ;avana :roup, Transcom :roup, 3abib :roup, MD) :roup, T.M :roup 4f (ndustries, Dragon :roup and multinationals such as "nocal 6orporation and 6hevron, have made ma!or investments, with the natural gas sector being a priority. ;ow, the overall economic situation is shown below by presenting with graphs and numbers.

%ra#h &'$$(: %D) %rowth *ate

:D9 growth rate for @angladesh is not so high. 4n average it is in increasing trend. (n ?--, it was /.I. and in ?-,- it ended with I.. @etween ?--, and ?-,- there is a lots of ups and downs in the :D9 growth rate but none of these is extremely high or extremely low. (n ?--? it felt down to K.K. but in ?--/ it increased to ?--D again decreased to K.=- and then increased several two years. gain in ?--> it came down to K.=- then there is an increasing trend up to ?-,-.

%ra#h &$'$': %D) )er Ca#ita 12

lthough :D9 growth rate have many ups and downs, per capita :D9 has a pretty increasing trend. +rom ?--, to ?--I per capita :D9 increased from ") H,0/- to ")H?D--. Then there is a sharp decline in per capita :D9 to ,K--. gain this per capita :D9 grew to ")H,0-- in ?-,- which is e#uivalent to ?--? level. (f we compare this data with some other developing country like @hutan, 7aldives then we will found these are very low level of per capita :D9.

%ra#h &$'$&: Inflation *ate

+rom ?--, to ?-,- no government was successful in controlling inflation rate. +rom ?--, to ?--D the then government was somewhat able to control the inflation rate which is suggested by the data in the graph. (nflation rate was reduced D.,-. from /.>-.. @ut after that the rate started to skyrocket in the next several years. The rate was highest in ?--> which was =.,-.. The prices of necessary goods came out of the purchasing power of the middle and low class. Then in ?--= the rate decreased largely and increased again in ?-,-.

%ra#h &$'$+: ,arket -alue of )u.licly Traded Share

13

The recent share market debacle is the conse#uences of many factors1 increase in the index with no fundamental changes of the companys balance sheet is one of them. (n ,==>, after market debacle in ,==0, the index was only /--. +rom ,==> to ?--> the index increased to ?>--. @ut from ?--> to ?-,- the index increased from ?>-- to >/--. )o, the fall was #uite predictable. The market value data of publicly traded shares suggested that the value was ")HD.I, billion ?--I but this value increased to ")HI.I0, billion in ?--> and ")H0.-I> billion in ?--=.

%ra#h &$'$/: Inde! Com#arison

"ntil December, ?-,- the market was in an upward trend. +rom ?--> to ?-,- the D)E :eneral index climbed up from ?>-- points to >/-- points. lthough in last ,years $from ,==> to ?-->% the index gains its value only ?D-- points $in ,==> it was /-- and in ?--> it was ?>--. )o net gain is ?D-- points.%, but only in ? years $from ?--> to ?-,-% the index gains value of /0-- points $>/--&?>-- N /0--%. )o at the end of ?-,-, market started to behave abnormally. The abnormality of the market accelerated at the beginning of ?-,,. (n ,- th 8anuary, ?-,, D)E :eneral (ndex lost its value of ID/ points and D)( index lost its value of /,> points within / minutes of trade. )o, the transaction was forced to be closed. t the beginning of the next day when transaction started the market gains it value of ,-,? points. This is not behavior of an efficient market. This inefficiency continued for the year. (n 8anuary ?, ?-,, D)E :eneral (ndex and D)( index were >D-K points and I>>> points respectively. @ut >th December, ?-,, after a long turmoil in the market the index came down to the K=D? points for D)E :eneral (ndex and K,,D points for D)( index. +rom the graph it is seen that both the index changed over the period in same way. 2hen D)E :eneral (ndex increases D)( (ndex also increases. 2hen D)E :eneral (ndex decreases D)( (ndex also decreases. )o it can be concluded that there is a positive correlation between D)E :eneral (ndex and D)( (ndex. This conclusion was also proved by calculating correlation coefficient between D)E :eneral (ndex and D)( (ndex. (t was found that the correlation between D)E :eneral (ndex and D)( (ndex was perfectly positive $correlation coefficient r N -.===/?=,/?%.

14

Part: 4
Industry Analysis

15

4.1 &'er'iew of ind!stry analysis

(ndustry analysis helps to assess the profit potential of each of the industries in which the firm is competing. The main ob!ective of the analysis is to decide in which industries a firm should invest to earn highest profit taking minimum risk.

%ra#h +$(: )0 *atio

The graph sows the scenario of industry wise 9'E ratios. The @anking sector has very low 9'E ratio. The industry has a price earning multiple of ,,.?/. 4ther non&bank financial institutions have price earning multiple of ,>.,-. The insurance sector has very high price earning multiple which is DK. @ut none of this can be compared with paper and printing industry. This paper and printing industry has very high level of 9'E ratio which is ,K>./-. This industry was extremely high 9'E ratio. The price earning multiple for !ute industry was negative because of negative average earning in the industry. (T sector was also taking the concentration of the investors. (t has 9'E ratio of D-.,>.

(election of ind!stries
6onsidering industry 9'E ratios and turnover the industries that ( have selected are& @anking industry, Engineering industry, +ood F llied, 9harmaceuticals, +inancial institution

16

orter)s *i'e *orces analysis

;ow it is important to analyze the competitive strength of the selected industries. (t means to analyze how much strong or capable the industry is to retain profit. 4ne important tool is 9orters / factor analysis which helps us to identify the relative strength of industries. The five factors used by 9orter are showed in the table below5

Threat of New Entrants-

Rivalry among Existing Firm-

Threat of Substitute Productoderate

!N"#STR$ PR%F!TA&!'!T$

&argaining Power of Su((liers

&argaining Power of &uyers-

The five forces that should be analyzed to determine the relative bargaining power of the firms in the industry and their customer and suppliers, which establish the profit potential, are O

Pharmaceuticals Industry
*ivalry among e!isting firms The average level of profitability is primarily influenced by the nature of rivalry among existing firms in the industry. +actors determining this force are O(ndustry :rowth Jate, 6oncentration and balance of competitors, Differentiation. +rom the above factor analysis it is apparent that the rivalry among existing firms of the pharmaceutical industry is high.

17

Threat of new entrants The ease with which new firms can enter in an industry is a key determinant of the profitability of firms. +or high economies of scale, capital re#uirement, legal barrier, costly and difficult access to distribution channel and government price regulation it is perceptible that threat of new entrants in pharmaceutical industry is low. Threat of su.stitute #roducts 9harmaceutical industries in @angladesh produce products are 3omeopathic, llopathic drugs. )o, substitute yurvedic, "nani, and 3erbal medicines.it is evident that

pharmaceutical industry has very little threat from substitute products for the low profitability and price&performance relationship of surrogates. "argaining #ower of .uyers The large number and low volume of purchase of buyers, buyers minute knowledge, inability to backward integrate and little price sensitivity depict buyers low bargaining power. "argaining #ower of su##liers )o, unavailability of alternative drugs, possibility of forward integration, buyers small . to suppliers business all lead to higher suppliers bargaining power.

Financing Industry
The porters five factor analysis of banking industry shows the following picture& Threats of substitutes is moderate, since there are some products and services which are also offered by the bank Threats of new entrants low. The existing firms en!oy some level of economies of scale which makes the entry to be very costly,
a) b) c) High legal barriers High initial capital re !ire"ent High initial #or"alities Low Risk Low Risk Low Risk

@argaining power of )uppliers is moderate, since there are many companies providing the same service. There is no scope for customers to backward

18

integrate and at the same time there is no scope for suppliers to forward integrate, @argaining power of @uyer is 7oderate. @ecause the customer switching cost is low Jivalry among existing firms is high. There are numerous players in the industry providing more or less standardized products.
a) b) c) %) $n%!str& growth rate high 'ro!n% 30 co"petitors (witching cost is low )ro%!ct %i##erentiation low Low Risk High Risk High Risk High Risk

Banking Industry
The porters five factor analysis of banking industry shows the following picture& Threats of substitutes is high, since the products and services are commodity type and there is very low switching costs for customers, Threats of new entrants medium, since the industry is matured there is not enough scope for new entrants to gain market share. costly, @argaining power of )uppliers is moderate, since there are many companies providing the same service. There is no scope for customers to backward integrate and at the same time there is no scope for suppliers to forward integrate, @argaining power of @uyer is low. Even if the segment of buyers is very large, they can not exercise ultimate power in case the firms are providing standardized products. Though rivalry would be high amongst the companies, buyers are still face a hindrance when the existing companies agree on loan and deposit terms, lso the existing firms en!oy some level of economies of scale which makes the entry to be very

19

 Jivalry among existing firms is high. There are numerous players in the industry providing more or less standardized products. )o the situation calls for ferocious price war to gain market share from each other to obtain profit and thus high rivalry.

Food & Allied Products

Threat of substitutes is low. Each company in the industry has arrange of their own different line of products which differ from other in terms of taste, flavor and color, Threats of new entrants medium. (t is #uite a growth industry keeping some space for high profit if a company can come up with some different products, @argaining power of )uppliers is high. Each company providing different products, having brand reputation, inability of the companies to backward integrate makes this happen, @argaining power of @uyer is medium, the factors that contribute to it are& inability of suppliers to forward integrate, non&standardized products, a bulk of buyers, huge segment of market making suppliers dependent etc, Jivalry among existing firms is high. The companies in the industry constantly strive for new addition to their product lines to meet emerging customer demands and thus it increases price war.

E !I EE"I !
"argaining )ower of Su##liers 12ow3 )uppliers product is not so much differentiated. )witching between suppliers is not costly. )uppliers do not have the option to forward integrate.

20

@uying firm is an important customer for the supplier.

"argaining )ower of "uyer 12ow3

@uyers do not buy in high volumes which means they are not important buying unit.

The product of the company is not differentiated. @uyers are not a threat to integrate backward into the business of seller.

@uyers switching costs to competing brands are low.

Threat of Su.stitutes 12ow3

(ndustry producing substitute is not profitable, )ubstitute product is not improving in its price' performance relationship.

4ew entrants5 analysis 1,oderate3 There exists a sizable economics of scale in the industry. Existence of strong learning' experience curve effects in the industry acts as an entry barrier. Garge amount of capital is re#uired in the industry to establish the company. The industry is providing a standardized product which shows a low switching cost also.

Threat of rivals in the Industry 16igh3 The (ndustry is providing a standardized product. There is a large percentage of costs that are fixed. (ndustry demand is in a growing phenomenon.

21

@uyers have low switching costs.

Part: 5
#om$any Analysis

22

*inancial performance analysis

5.1 +is$ +et!rn analysis
+ive companies have been chosen for further analysis. These companies are (DG6, )#uare, @ T@6, @ @ank and @D Gamp. (n this section @eta analysis, )tandard deviation $Jisk% analysis, 7ean return and 3olding 9eriod Jeturn analysis are given with their respective graphs. The entire data are taken as of the year of ?-,,. )o for this cross sectional analysis no time period is given on the graph.

%ra#h /$($(: Com#arison of "eta

@eta measures the systematic risk of a company. positive beta means that the asset*s returns generally follow the market*s returns, in the sense that they both tend to be above their respective averages together, or both tend to be below their respective averages together. +rom the above graph it is clear that @ @ank has the highest level of co&movement the market. (ts beta coefficient is -.=K. )o, it follows the market index and as e#ually risky as the market. The second highest co&movement occurs for (DG6. (DG6 has beta coefficient of -.=D. The lowest level of return movement with the market occurs in case of )#uare. )#uare has beta coefficient -.K/. )o, when the market goes up by ,--., the return of )#uare goes up by K/.. (n case of downward market for this relationship the return of )#uare will go down by K/. if the market return goes down by ,--..

23

%ra#h /$($': Com#arison of Standard Deviation

)tandard deviation measures the level of risk a security possesses. (t shows how much variation or AdispersionA exists from the average $mean, or expected value%. low standard deviation indicates that the data points tend to be very close to the mean, whereas high standard deviation indicates that the data points are spread out over a large range of values. +rom the given graph it is found that none of the company has very much risky return. Their returns do no vary widely from the mean. (f these five companies are compared within themselves then it can be concluded that (DG6 has highest level of risk as it has standard deviation of -.->. @ @ank and @D Gamp have the second highest level of risk as they both have standard deviation of -.-0. @ T@6 and )#uare have standard deviation of -.-/ and -.-K respectively.

%ra#h /$($&: Com#arison of ,ean return

7ean is one form of central tendency. (t is used to typify a list of values. s the data of a falling market $data of ?-,,% is taken so none of the company shows good percentage of return. Data of @ T@6 shows the highest percentage of return which is

24

-.=,.. The second highest return produced by the security of )#uare. nd then -.?/., -.,/. and -.,K. return was produced by the security of (DG6, @D Gamp and @ @ank respectively.

%ra#h /$($+: Com#arison of 6)*

3olding period return $39J% is the total return on an asset or portfolio over the period during which it was held. (t is the percentage by which the value of a portfolio $or asset% has grown for a particular period. (n case of portfolio analysis, holding period return provides better result than mean return. (n ?-,,, the share market of @angladesh crashed. )o the return of all the securities went down. 7ost of the security yielded negative return for the investors. This scenario is truly reflected by holding period return analysis of these five companies5 (DG6, )#uare, @ T@6, @ @ank and @D Gamp. @D Gamp yielded the most panic return which is around negative =D=.. This means the investors of this company lost their investment at a very high rate. Then, )#uare yielded &K-0. returns and (DG6 yielded &K-K. returns. mong all these five companies, only @ @ank yielded positive holding period return which is =I..

Industry @anking Engineering +ood F llied 9harmaceuticals +inancing

Com#any name @ @ank Gtd. @D Gamps @ T@6 )#uare 9harmaceuticals (DG6

25

/$' 7inancial Indicators

ccording to the performance of different sectors There are selected five companies from five sectors which are5 @ank, pharmaceutical, engineering, food and financial institution. To construct a portfolio an investor has to invest in securities of different companies after thorough analysis of individual companies of different industries. Thus an investor can diversify the risk and construct an optimal portfolio. 6ompanies are analyzed through the study of wide range of data, including 9'E ratios, E9), ; L per share, net profit or loss after tax, reserve and surplus, market categories and so on. ccording to these criteria of company analysis there are selected the following companies which are shown in the following table.

"ritish American To.acco "angladesh Com#any 2imited

"ritish merican Tobacco @angladesh 6ompany Gimited $@ T@% is one of the

largest private sector enterprises in @angladesh, incorporated under the 6ompanys ct ,=,D on ?nd +ebruary ,=0? and the 6ompany has a paid up capital of Tk. I-million. (t is a large player in the tobacco industry with a focus to the informed adult smokers those have a strong @rand choice. (t serves different market segment by different brand of product. 4ther information regarding the company is presented below5

26

+!sines s (eg"en t .oo% 1 'llie%

Listing ,ear

-o o# (ec!ritie s 6000000 0

.ace /al!e 10*0

0arket Lot 50

1977

(hare )ercentage 2irectorr 3(ponso r 65*91

4o5t* 0*64

$nstit!te 21*48

.oreign 0

)!blic 11*97

Ta.le-/$'$(

$ear

Earning (er share 47*98 34*48 27*81 13*32 6*03 3*88

NA)

Net Profit Price After Tax Earning *mn+ Ratio 2878*59 2068*57 1668*78 798*97 361*58 232*88 14*93 11*87 7*25 11*15 13*95 18*14

, , "ividend "ividen d $ield 430*00 300*00 240*00 70*00 30*00 30*00 6*00 7*33 11*90 4*71 3*57 4*26 27

2010 2009 2008 2007 2006 2005

104*01 86*04 75*56 54*75 42*40 39*38

2004 2003 2002 2001 2000

11*22 14*52 16*52 14*57 5*92

38*70 38*48 39*09 33*57 40*87

673*31 871*31 991*19 874*32 476*59

8*33 10*43 8*08 6*41 9*15

100*00 100*00 110*00 120*00 90*00

10*70 6*61 6*61 7*16 12*38

Ta.le-/$'$'

ID2C
(DG6 +inance Gimited is a multiproduct financial institution, established in ,=>/ with the collaboration of reputed international development agencies. The primary goal of (DG6 was to help modernize the financial services industry, by introducing modern modes of financing hitherto unknown to @angladesh. This, we set about to do, by pioneering the launch of a multitude of financial products and services. @ecome the best performing and most innovative financial solutions provider in the country. 6reate maximum possible value for all our stakeholders by adhering to the highest ethical standard. Gong term maximization of stakeholders* values in a socially responsible manner is the main goal. The 9aid up capital is ==- million taka

+!siness (eg"ent .inancial $nstit!tio n

Listing ,ear 1992

-o o# (ec!ritie s 9900000 0

.ace /al!e 10*0

0arket Lot 200

(hare )ercentage 2irectorr 3(ponsor 35*99 4o5t* 0*00 $nstit!te 50*69 .oreign 0 )!blic 13*32

28

Ta.le-/$'$&
Net Profit Price After Tax Earning *mn+ Ratio 1320*17 821*88 406*37 252*40 155*16 152*73 133*97 120*84 118*62 90*04 70*17 34*67 27*13 14*86 12*03 7*58 7*27 8*85 8*55 7*90 11*19 10*13 , , "ividend "ividen d $ield 35*0065 0*75 11*00 15*0020 15*0025 5*0033 37*50 35*00 30*00 30*00 30*00 30*00 0*27 0*66 0*90 0*64 5*07 4*43 4*35 4*80 4*47 6*33

$ear

Earning (er share 22*12 273*96 162*55 126*22 103*44 101*82 89*32 80*56 79*08 60*03 46*78

NA)

2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

61*50 797*70 644*52 582*35 471*14 529*74 465*42 477*67 316*647 281*39 251*10

Ta.le-/$'$+

S8uare )harmaceuticals
The nature of business of )#uare 9harmaceuticals is Bowning and operating a modern 9harmaceuticals and sells drugs and medicine. The establishment year is ,==, and listing year is ,==/. The ownership structure of the company is sponsors $/K.,I.%,

29

general public $D=.,K.% and foreigners $I.0.%. The capital market information of this company is listed below5 Industry name: 9harmaceuticals and 6hemicals industry. ,arket category: 7ace value: ,-, 9aid up capital: ?IK> million taka
$ear Earning (er share /01234 170*51 Net Asset )alue Per Share 41521905*05 Net Profit Price After Tax Earning *mn+ Ratio -3652/2058*38 1381*86 218*61 234*67 290*71 269*46 254*96 303*78 229*47 167*26 1280*08 1288*65 1304*07 1295*04 1086*42 1107*90 1030*71 871*24 1303*24 1165*86 1255*85 970*04 764*88 759*45 573*68 418*25 -42/7 23*44 35*90 11*20 9*32 10*97 16*45 7*14 4*09 5*52 8*33 , , "ividend "ividen d $ield 712..7. 40*0025 40*0035 50*0050 75*0020 77*0015 70*0020 70*0020 75*0020 70*00 65*00 .264 1*36 0*97 2*04 3*43 2*42 1*58 3*85 6*04 7*50 4*67

-./. 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Ta.le-/$'$/

A" "ank 2TD

@ @ank Gimited, the first private sector bank was incorporated in @angladesh on D,st December ,=>, as effect from below5 rab @angladesh @ank Gimited and started its operation with pril ,?, ,=>?.The capital market information of this bank is mentioned

30

+!sines s (eg"en t +ank

Listing ,ear -o o# (ec!rities 1983 36861139 0 .ace /al!e 10*0 0arket Lot 50

(hare )ercentage 2irectorr 3(ponso r 13*90

4o5t* 0*57

$nstit!te 48*65

.oreign 0*02

)!blic 36*86

Ta.le-/$'$9

$ear

Earning (er share /-231 133*26 103*18 256*10

Net Asset )alue Per Share 332/3 399*00 301*49 807*00

Net Profit Price After Tax Earning *mn+ Ratio 7646213417*19 2300*62 1903*49 /320. 11*04 9*16 10*00

, , "ividend "ividen d $ield /.2../1 20*0025 15*0015 200 .207 1*70 1*82 7

-./. 2009 2008 2007

31

2006 2005 2004 2003 2002 2001 2000

93*08 31*26 18*19 3*63 5*78 64*22 38*75

481*74 303*76 251*22 234*25 234*46 261*09 221*07

532*19 162*45 90*07 17*12 23*69 263*284 158*86

30*54 17*61 20*01 106*11 38*64 4*67 6*88

30 10 5 5 15 25*00 18*00

7 7 7 7 7 8*33 6*75

Ta.le-/$'$:

"D 2am#s
@angladesh Gamps is an Engineer based company. (ts paid up capital 0? 7illion. The capital market information of this company is mentioned below5

+!siness (eg"ent 8ngineerin g

Listing ,ear 1981

-o o# (ec!ritie s
7208160

.ace /al!e 10*0

0arket Lot 50

(hare )ercentage 2irectorr 3 (ponsor 61*03 4o5t* 0*00 $nstit!te 22*24 .oreign 0*03 )!blic 16*67

32

Ta.le-/$;

$ear

Earning (er share 8*57 81*17 76*75 49*07 47*0 48*46 45*48 29*77 19*93 21*16 22*60

Net Asset )alue Per Share 155648 424*27 378*10 331*36 282*29 264*76 243*80 225*82 218*05 231*15 229*88

Net Profit Price After Tax Earning *mn+ Ratio 61*75 58*51 55*32 35*37 34*13 34*93 32*78 21*46 14*36 15*25 1*63 30*51 22*78 14*29 15*35 10*32 11*02 13*44 27*90 22*58 18*27 141*61

, , "ividend "ividen d $ield 35*00 35*00 35*00 30*00 30*00 27*50 25*00 20*00 20*00 20*00 15*00 1*34 1*89 3*19 3*99 6*18 5*15 4*09 2*41 4*44 5*17 4*69

2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Ta.le-/$'$;

33

Part: 6

A$$lication Of Dynamic Asset Allocation

34

,.1 (tatic allocation

This part has been done in ? parts& static allocation and dynamic allocation. (n doing the static asset allocation, K scenarios are considered namely& ,--. (nvestment in E#uity portfolio i.e. Jisky 9ortfolio. ,--. (nvestment in T E @ill i.e. Jisk free portfolio. /-. & /-. investment in E#uity and T E @ill $6onstant weight% )tatic /-. & /-. investment in E#uity and T E @ill

The stocks have been selected from Dhaka )tock Exchange $D)E%. )tocks are selected from five different industries with the cyclical and counter&cyclical nature of business for diversification. There are considered T& @ill as risk free asset and there are also considered =, days T& @ill rate.

Scenario ( (<<= investment in e8uity #ortfolio 1risky asset3

ssumptions5 mount to be invested is ,------ tk. (nvestment horizon is one year. 9ortfolios are e#ually weighted after every #uarter. ;umbers of shares to be invested are determined with closing price of last #uarter.
Amount to be Invested

Name

35

$)29 $(L'0$ +'-: )'20'L$.8 +8;$09< +'='(H<8 )'20'<$L '.='+'>=< R2.<<2 4) 0'R$9<

100000.00 100000.00 100000.00 100000.00 100000.00 100000.00 100000.00 100000.00 100000.00 100000.00

36

?1 ?2 ?3 ?4

High Low 9losing 1959608*9 1706270*6 7 1596710*79 2 2499194*6 2125469*3 0 1618010*86 3 2566433*1 2133776*7 2 2001291*46 3 3054541*8 2814417*6 1 2557905*63 3

2hen ,--. investment is in risky asset, then money is allocated among the stocks e#ually. (n first #uarter the ?----- amount of money allocated to each company is divided by the closing price of last #uarter of ?-,- to get the no. of shares. fter finding that, there are considered the high, low and closing prices for #uarter ,. The final number of shares is found by ad!usting the stock dividend. The portfolio value is found out by multiplying the no. of shares with the corresponding prices. Thus the closing value at and of ,st #uarter are ;//>;<$<;. (t will be the amount available for investment for second #uarter and the procedure goes like this for rest ?

Puarter , #uarters.

37

Name

Weigh t 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10

Amount to be Invested 100000 100000 100000 100000 100000 100000 100000 100000 100000 100000

Initial Price 1".10 %+."0 &&.00 &%.#0 #$%.00 1"".%0 "#."0 $#.+0 1'$.&0 +'".00

No. of Shares ##$%."& $$"+.11 1#1#.1# 1##0.+, 1,0."% #+0.', 11&#.#0 +,#$.#' #',.+' $&%.##

High $$.10 %#.00 1#,.00 #'%.00 +$,.#0 1,"."0 "&.,0 +1.+0 1'%.,0 %1$."0

Low 1'.$# +,.00 1$,.10 %"0.+& +$#.10 1&".00 &'.+0 1'.,0 1%1.00 ++,.,0

losing $$.00 %$.10 1+0.00 #0".'0 +$'.$+ 1'0.10 '%.#0 1".+0 1%'.+0 +,,.&0

IP! ISLA(I )AN* PA!(ALI-. )./I( 0 )A1ASH0. PA!(A0IL A-1A)A210 3!-00! 4P (A3I 0

38

om5an6

$)29 $(L'0$ +'-: )'20'L$.8 +8;$09< +'='(H<8 )'20'<$L '.='+'>= < R2.<<2 4) 0'R$9<

High 7alue 1$$0,,.%# 10$'+,.'+ $%0,0,.0, "",,$$.%" &$""1.&" 10##$0.1' 101$"$.0# 1$+'1#.%$ 101++$.#& 10,$0&.+# 1,#,&0"., '

Low 7alue ,#+0+."' ",0%1.10 1,#&0&.0& '%%'%%.1, &$0%1.," ",1'1.,' '"%+".$+ '0'#0.,, "1&,1.'' ",,$0.&+ 1#,&'10.' ,

losing 7alue 1$1#%&.,& ,&11".'$ 1,&,&,.'0 '""&"$.1' &$%%".%' ,0$"&.&$ "&"$,."% '$++$.0$ "#+%1."+ 10#'1%.$, 1'0&$'0.& $

?uarter '
Amount to be Invested 1'0&$' 1'0&$' 1'0&$' 1'0&$' 1'0&$' 1'0&$' 1'0&$' 1'0&$' 1'0&$' 1'0&$'

Name IP! ISLA(I )AN* PA!(ALI-. )./I( 0 )A1ASH0. PA!(A0IL A-1A)A21 0 3!-00! 4P (A3I 0

Weight 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10

Initial Price $$.00 %$.10 1+0.0 0 #0".' 0 +$'.$ + 1'0.1 0 '%.#0 1".+0 1%'.+ 0 +,,.& 0

No. of Shares ''##.'" %0#$.,0 1+1$.#$ ++#.%$ #$1.%+ 100+.10 $$,0.+0 ,+$+."" 11#".+& %$&.,,

High $$.+0 %+.00 1#,."0 #",.00 +#&.00 %#,.&0 1++.10 $#.#0 $+".00 &##.10

Low 1+.$1 ++.,0 1%%.#0 %"0.+0 +%#.&0 1&".&0 '#.+0 1".+0 1%'.$0 +"#.$0

losing 1&.#0 +".+0 1%,.10 #,'.,0 +#%.$+ +&+.%0 10&.10 1,.,0 1'".,0 &11.+0

-alu

39

om5an6 IP! ISLA(I )AN* PA!(ALI-. )./I( 0 )A1ASH0. PA!(A0IL A-1A)A21 0 3!-00! 4P (A3I 0

High 7alue 1'$,#+.', 1'%$'%.&' $0,'%0.0+ 1,'#&1.1$ 1"#&$".#& %&10$%.0, +0%"+".%1 $+''#,.0$ $'#&,0.'0 $','$%.1, $%,,1,%.& 0

Low 7alue 10$%#+.', 1+'+,+.$, 1",&#".#% 1&1101.1, 1"0$0#.'0 1&,1$$.%1 1'$%#,.+0 1'0&$'.0& 1'0#11.$+ 1&%%'".+% 1&1"010." &

losing 7alue 1$','0.+0 1##$$&.0% 1,#&,&.11 $00#%&.++ 1"%'0#.&+ +&%#$&.01 $%+000.%$ 1"##%#.$' $0'$+1.+' $&10$1."+ $1$#%&,.+ +

?uarrtar &
Amount to be Investe d $1$#%' $1$#%' $1$#%' $1$#%' $1$#%' $1$#%' $1$#%' $1$#%' $1$#%' $1$#%'

Name IP! ISLA(I )AN* PA!(ALI-. )./I( 0 )A1ASH0. PA!(A0IL A-1A)A21 0 3!-00! 4P (A3I 0

Weight 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10

Initial Price 1&.#0 +".+0 1%,.10 #,'.,0 +#%.$+ +&+.%0 10&.10 1,.,0 1'".,0 &11.+0

No. of Shares 1$""1.& + ##%,.#+ 1%$#.#+ +##.%, &00.0+ #"%."" $00+.$' 10&"0.' # 11"".0" +%'.'0

High $1.&0 +,.00 1,#.00 "%&.00 $&%.#0 +,1.10 1$'.10 $&.10 $$1.+0 "",.#0

Low 1&.%0 +%."0 1%$.00 ##&.$0 $&$.10 +'1.%0 ,&.#0 1,."0 1''.,0 #,$."0

losing 1,.$0 +&.10 1&1.%0 '$1.$0 $&+.%# $0".#0 ,".%0 $1.%0 1,&.%0 '%,.#0

-alue

40

IP! ISLA(I )AN* PA!(ALI-. )./I( 0 )A1ASH0. PA!(A0IL A-1A)A210 3!-00! 4P (A3I 0

High 7alue $'"$%+.$& $1&%+1.&0 $'','".", +00'%+.'" 1#"'0&.&' $$"'%".$+ $#%&1#.&0 $'"'&'.#, $&$,$1.+, +0,$'&.1+ $#&&%++.1$

Low 7alue $11$#".'' 1,+1$+.#" $0$%$#.&# 1,''$+.0% 1#'$&&.&1 $1'$$&.01 1,++1#.#% $11%'"."& $11+#"."& $0&11%.## $001$,1.%&

losing 7alue $%'+$'.+% $00++'.,' $+00"0.,, $#&+'".'% 1#"0'&.&% 1$1,%".+& 1,'1$1.'# $$"#&".0& $++++".$" $&0#,".&0 $1++''&.'+

Scenario ' (<<= investment in T-"ill 1risky free asset3

,--. risk free5 T&@ill

(nvestment

P,
1046700.00

P?
1105315.20

PD
1182687.26

PK
1277893.59

1000000

(n case of ,--. risk free investment in T&@ill the portfolio value is being compounded in each #uarter and thus increasing from #uarter to #uarter.

Scenario & /<=-/<= investment in e8uity @ T-"ill

2hen /-. investment is in risky asset and /-. investment in risk free asset then money is allocated among the stocks e#ually. (n first #uarter the ,----- amount of money allocated to each company is divided by the closing price of last #uarter of ?-,- to get the no. of shares. fter finding that, there are considered the high, low and closing prices for #uarter ,. The final number of shares is found by ad!usting the stock dividend. The portfolio value is found out by multiplying the no. of shares with the corresponding prices. Thus the closing value at and of , st #uarter are K?0==-.-K. (t will be the amount available for investment for second #uarter and the procedure goes like this for rest ? #uarter. The closing value a of ,st #uarters risk free asset are
41

/?>---.--. (t will be the amount available for investment for second #uarter and the procedure goes like this for rest #uarters.

1st -!arter

+is$y Asset ame %eight Amount to &e Invested Initial Price .,,,,,',, .,,,,,',, .,,,,,',, .,,,,,',, .,,,,,',, /.0'1, 505'/1 -0.'21 .14',1 21-'-, o' of (hares .23'1/ -.1'./ 24-'02 02-'/. -42'32 )igh 004'4, -54'1, -53'3, .,,'2, 2-3'1, *ow 053',, -5-',, -5,',, 34'3, 2-1'., #losing 00/'/, -53'42 -5-'/, 33'.4 55.'/0

BA+B# ,'-, ID*# ,'-, BD *am$s ,'-, AB Bank ,'-, (6uare Pharma ,'-, BA+B# ID*# BD *am$s AB Bank (6uare Pharma

)igh 7alue *ow 7alue #losing 7alue 3225-'05 3,1/3'-, 32.43'.. 12503'0. 1-,/.',. 12/11'/4 310.4'3, 3.42,'44 3-402'34 0250,'32 0-1/1'.2 0-/1-'-3 32115'4, 3-2,1'1. .-15-4'44 233550'44 24320.'/2 5-/33,',5

+is$ *ree Asset Initial 7alue Ending 7alue "otal .al!e 1,,,,,',, 1-4,,,',,

Ta.le-9$($9
/2044,.11 /103,1.03 /55//2.24

2nd -!arter

+is$y Asset ame %eight Amount to &e Invested Initial Price 41134',. 41134',. 41134',. 41134',. 41134',. 00/'/, -53'42 -5-'/, 33'.4 55.'/0 o' of (hares )igh .-4'-, 25-'02 21-'03 402',0 .32'// 022'3, -,0'/4 ./.'4, 41'31 210',, *ow 0,1'1, -,5',1 ./,'., 42'0, 251'0, #losing 02,'3, -,5'3, ./,'-1 40'., 215'-2

BA+B# ,'-, ID*# ,'-, BD *am$s ,'-, AB Bank ,'-, (6uare Pharma ,'-,

BA+B# ID*# BD *am$s AB Bank (6uare Pharma

)igh 7alue *ow 7alue #losing 7alue 4.-05'3. //0-5',/ 4,44,'2. /,454',, 033.-'02 /,-,2'4/ 0,13-'-5 1333-'0/ 0,,51'1/ /5./3'/0 /-.1.'14 /52,3'-0434,'1/ 00301'5. 0402/'0, 211401'54 250050'20 215,/0'14

+is$ *ree Asset Beginning .al!e %nding .al!e "otal .al!e 521222.22 5,4/,2.22 /22125.41 /11,2,.3, /1/23,.51

42

Ta.le-9$($:

3rd -!arter

+is$y Asset ame %eight Amount to &e Invested Initial Price /,4.1'2/,4.1'2/,4.1'2/,4.1'2/,4.1'202,'3, -,5'3, ./,'-1 40'., 215'-2 o' of (hares )igh ..-'-5 251'0. 5.1'31 4--'54 .33'3. 0-3',, .3/',, .35',, /5'21 -05'1, *ow 132'/, .31',, .43'-, /2'1, -0-'., #losing 0.5'/, .31'1, .32'2, /2'/1 214'00

BA+B# ,'-, ID*# ,'-, BD *am$s ,'-, AB Bank ,'-, (6uare Pharma ,'-,

BA+B# ID*# BD *am$s AB Bank (6uare Pharma

)igh 7alue *ow 7alue #losing 7alue /,0,-',1 00023'4, 04330'31 04,41',, 0/232'/4 0/100'13 4,035'., /403/'11 4,5,-'35 0..1.'-, 0,51-'., 0,01/'/1-4//',3 1-23/'2, /./,,'52 2225,3'51 2-114,'12 2532-5'02

+is$ *ree Asset Beginning .al!e %nding .al!e 5,4/,2.22 ,1243/.21

Ta.le9$($;
/43141.03 /3,21/.11 /5/0,3./1

4t# -!arter

"otal .al!e

+is$y Asset ame %eight Amount to &e Invested Initial Price 03405'32 03405'32 03405'32 03405'32 03405'32 0.5'/, .31'1, .32'2, /2'/1 214'00 o' of (hares )igh ..2'00 21/'2/ 20.'52 35/'2.35'4, 0-.'1, .2/',, .5,',, /,'1, -2/',, *ow 0,-',, .-5',, .2/'2, 05'-, -2-'4, #losing 0,4'/, .2-'4, -,4',, 04'3, -21',,

BA+B# ,'-, ID*# ,'-, BD *am$s ,'-, AB Bank ,'-, (6uare Pharma ,'-,

BA+B# ID*# BD *am$s AB Bank (6uare Pharma

)igh 7alue *ow 7alue #losing 7alue /,02/'/3 045-.'54 03.4-'34 54313',1 552.2'2, 5/514'.1,0,,'1/ 530-5'/, /1.//'34 00/40'.2 0,4.4',. 01-/,'550.00'1/ 51254'52 51//0'34 -42.1,'.-041-1'32,-400'54

+is$ *ree Asset Beginning .al!e %nding .al!e "otal .al!e ,1243/.21 ,1243/.21 1/351/.42 101/,5.22 /13325.0,

Ta.le-9$($>

43

(cenario 4 Static /<=-/<= Investment in 8uity @ T-"ill

"otal Amo!nt to 5e In'ested Amo!nt in +is$y Asset :(toc$; Amo!nt in +is$ *ree Asset :"-Bill; 52< 52<

192229222.22 5229222.22 5229222.22

+e-allocation (c#ed!le
+e-allocation roportion S#)*k T,B"$$ 50+ 50+ 3rd -!arter 441903.58 479268.95 921172.53 460586.26 460586.26 921172.53 4t# -!arter 399330.97 497663.46 896994.43 448497.22 448497.22 896994.43

Before +e-allocation S#)*k T,B"$$ T)#a$ After +e-allocation S#)*k T,B"$$ T)#a$

1st -!arter 427990.04 523350.00 951340.04 475670.02 475670.02 951340.04

2nd -!arter 393522.27 502307.54 895829.81 447914.91 447914.91 895829.81

1st -!arter

Ta.le-9$($(<

+is$y Asset 3ame 4eig#t 0.20 0.20 0.20 0.20 0.20 Amo!nt to 5e In'ested 100000.00 100000.00 100000.00 100000.00 100000.00 Initial rice 716.50 464.75 261.35 158.05 352.20 3o. of (#ares 6ig# 139.57 215.17 382.63 632.71 283.93 668.80 248.50 249.90 100.30 329.50 7ow 649.00 242.00 240.00 98.90 325.10 8losing 667.70 249.83 242.70 99.18 441.76

BATBC IDLC BD Lamps AB Bank Square !arma

BATBC IDLC BD Lamps AB Bank Square !arma

6ig# .al!e 7ow .al!e 8losing .al!e 93342.64 90579.20 93189.11 53469.61 52071.01 53755.78 95618.90 91830.88 92863.98 63460.93 62575.13 62752.29 93554.80 92305.51 125428.88 3//44,.11 31/3,1.03 420//2.24

+is$ *ree Asset In"#"a$ %a$ue &n'"n( %a$ue "otal .al!e 500000.00 523350.00 /220/,.11 /12011.03

44
/51342.24

Ta.le-9$($((

2nd -!arter

+is$y Asset 3ame 4eig#t 0.20 0.20 0.20 0.20 0.20 Amo!nt to 5e In'ested 95134.00 95134.00 95134.00 95134.00 95134.00 Initial rice 667.70 249.83 242.70 99.18 441.76 3o. of (#ares 6ig# 142.48 380.79 391.98 959.21 215.35 633.90 206.78 171.80 85.95 356.00 7ow 605.50 204.05 170.10 83.60 345.60 8losing 630.90 204.90 170.25 86.10 354.23

BATBC IDLC BD Lamps AB Bank Square !arma

BATBC IDLC BD Lamps AB Bank Square !arma

6ig# .al!e 7ow .al!e 8losing .al!e 90318.17 86271.74 89890.73 78740.78 77701.21 78024.89 67342.49 66676.12 66734.92 82443.72 80189.58 82587.60 76665.31 74425.65 76284.14 3/5512.40 3152,4.32 3/3522.20

+is$ *ree Asset Be("nn"n( %a$ue &n'"n( %a$ue "otal .al!e 475670.02 502307.54 1/0111.21 110501.14 1/512/.11

45

Ta.le-9$($('

Ta.le-9$($(&
4t# -!arter

+is$y Asset 3ame 4eig#t 0.20 0.20 0.20 0.20 0.20 Amo!nt to 5e In'ested 92117.25 92117.25 92117.25 92117.25 92117.25 Initial rice 614.70 195.50 193.30 73.75 358.66 3o. of (#ares 6ig# 149.86 471.19 476.55 1249.05 256.84 621.50 137.00 140.00 70.50 237.00 7ow 602.00 124.00 137.30 64.20 232.80 8losing 608.70 132.80 208.00 68.90 235.00

BATBC IDLC BD Lamps AB Bank Square !arma

BATBC IDLC BD Lamps AB Bank Square !arma

6ig# .al!e 7ow .al!e 8losing .al!e 93136.28 90214.07 91218.11 64552.76 58427.31 62573.77 66717.10 65430.41 99122.55 88057.85 80188.85 86059.37 60870.86 59792.13 60357.18 303334.14 354252.00 3//332./0

+is$ Asset 3rd *ree -!arter Be("nn"n( %a$ue &n'"n( +is$y%a$ue Asset "otal .al!e 3ame 4eig#t BATBC IDLC BD Lamps AB Bank Square !arma 0.20 0.20 0.20 0.20 0.20 460586.26 497663.46 Amo!nt to 5e In'ested 89582.98 89582.98 89582.98 89582.98 89582.98 Initial rice 630.90 204.90 170.25 86.10 354.23 102//1.32 15101,.23 1/,//4.43 3o. of (#ares 6ig# 7ow 8losing 141.99 437.20 526.18 1040.45 252.89 629.00 197.00 194.00 74.35 264.50 593.70 195.00 189.20 73.50 262.10 614.70 195.50 193.30 73.75 358.66

BATBC IDLC BD Lamps AB Bank Square !arma

6ig# .al!e 7ow .al!e 8losing .al!e 89313.20 84300.87 87282.70 86129.07 85254.67 85473.27 102079.87 99554.19 101711.54 77357.66 76473.28 76733.39 66890.72 66283.77 90702.67 421002.52 4111,,.0, 441/23.51

+is$ *ree Asset Be("nn"n( %a$ue &n'"n( %a$ue "otal .al!e 447914.91 479268.95 /2123/.40 1/1135.01 /21102.53

Ta.le-9$($(+

,.2 Dynamic allocation

46

(n this strategy, the manager replicates an option through continuously revising the proportions of a portfolio consisting of the underlying asset $stock'bond% and the risk less asset $bond'T&bill% to insure portfolios value. This strategy re#uires buying more stock when the market is going up and selling off some stock as the market goes down. The proportions allocated to the underlying risky asset F the risk less asset change every period, so this strategy re#uires a significant amount of trading. The no. of units of the underlying risky asset that must be held long at any given moment will be given by the call options BDeltaC. The amount of risk less asset to hold is determined by subtracting the value of the units held in the underlying asset from the total value of the insured portfolio.

Assum#tions:
(n this analysis there have to invest in securities considering the market scenario. (t was not possible to apply our theoretical knowledge in practical applications in rigid and structured form .+or simplicity ( have taken some assumptions for analytical purpose5 Total amount of investment at the initial period is Tk. ,------ and the distribution initially is /-.&/-. of our total fund in e#uity and T&@ills respectively. The fund will be e#ually distributed among / securities. There are considered T& @ill as risk free asset Time period is considered as #uarterly

Initial Investment T-"ill (nvestment in )tock Total mount TA$ /<<<<< Tk. Tk /----,------

The amount of e#uity will be e#ually distributed among / securities.

Delta: Delta is the no. of shares that an investor will buy for each option shorted. )o
here delta will determine how much to buy'sell in e#uity securities and T&@ill.

47

Delta B 1Insured -alue in 6igh - Insured -alue in 2ow30 1(<<= in risky asset in high - (<<= in risky asset in low3

"ime eriod 2 Insured Portfolio

.,,8 "isky Asset E6uity +:Bill Delta

.9,,,9,,,',, 1,,,,,',, 1,,,,,',, ,'1,

.,,,,,,',,

ew Portfolio E6uity +:Bill +otal

1,,,,,',, 1,,,,,',, .,,,,,,',,

Ta.le-9$'$(

.st ;uarter Insured Portfolio

.,,8 "isky Asset E6uity +:Bill Delta (ell (hare Buy +:Bill

41134,',4 5-/33,',5 1-221,',, :,'.1 113-34'.2 113-34'.2

31.25,',5

ew Portfolio E6uity +:Bill +otal

:.2.2,4',3 .,4-054'.2 31.25,',5

Ta.le-9$'$' )o, here the table defines the picture for first period. The initial delta was ./ while it has reduced to &.,/ in #uarter ,. )o, this difference amount of shares is sold. 2ith the money provided by selling off the e#uity is used to buy T&@ill. The ultimate portfolio

48

is found out by subtracting sold amount of shares from initial shares and adding the new amount of T&@ill to initial t&bill.
-nd ;uarter Insured Portfolio

.,,8 "isky Asset E6uity +:Bill Delta Buy (hare (ell +:Bill

/,4.12'.1 :.,402.'2. ..52-/0'52 ,'-2 -/-2/1'3-,5 -/-2/1'3-,5

.,25051'.-

ew Portfolio E6uity +:Bill +otal

.02/55'0.,4/,3,,'1,0 .,25051'.-

Ta.le-9$'$& The table defines the picture for second period. The delta has increased to .?D in #uarter ?. )o, this difference amount of shares is bought. To buy the shares we need money and this money is provided by selling off this amount of T&@ill. The ultimate portfolio is found out by adding bought amount of shares to initial shares and subtracting the sold amount of T&@ill from initial t&bill.
2rd ;uarter Insured Portfolio

.,,8 "isky Asset E6uity +:Bill Delta Buy (hare (ell +:Bill

034053'-1 .0.15/',1 32.402'15 ,'05 -4/0.,',/ -4/0.,',/

.,325.,'13

ew Portfolio E6uity +:Bill +otal

553.1/'.. 055-12'5/ .,325.,'13

Ta.le-9$'$+ )o, here the table defines the picture for third period. . The delta has increased to .IK in #uarter D. )o, this difference amount of shares is bought. To buy the shares we need money and this money is provided by selling off this amount of T&@ill. The ultimate

49

portfolio is found out by adding bought amount of shares to initial shares and subtracting the sold amount of T&@ill from initial t&bill.

5th ;uarter Insured Portfolio

.,,8 "isky Asset E6uity +:Bill Delta

0,1/2-'3/ 2435-.'42 030..1'44 ,'05

.,4112/'/.

#losing Portfolio E6uity +:Bill +otal

2435-.'42 030..1'44 .,4112/'/.

Ta.le-9$'$/ Stock

8&387=(I&3

:.2.2,4',3

T-"ill )eriod < Stock /<<<<< T-"ill /<<<<< Total

(<<<<<<

)eriod ( Total

(<;'9+;$(&

Stock )eriod ' (9&:++$9( T-"ill ;:<><<$/< 9 Total

(<&+9+/$('

)eriod & Stock ++>(/:$(( T-"ill 9++'/&$+: Total (<>&+(<$/>

)eriod + Stock
&;>+'($;&

>/(&+<$<+

T-"ill 9>9((/$;; Total (<;//&:$:(

>/31.25,',
5

50

(n each period when the e#uity value is increasing, the delta is increasing and when the e#uity value is decreasing, the delta is decreasing. (t indicates that dynamic allocation strategy has #uite successfully captured the stock price movement,

ny violation of such behavior may be related to sudden change in market or effect of multiplier,

n investor must look for every possible situation before engaging in dynamic asset allocation.

BIB*IO!"AP)<

www.dsebd.org

www.bangladesh&bank.org
www.bll.com.bd www.idlc.com www.abbank.com.bd www.batbangladesh.com www.squarepharma.com.bd

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