...The Pakistan Development Review 44 : 4 Part II (Winter 2005) pp. 863–876 Performance Evaluation of Mutual Funds in Pakistan S. M. AAMIR SHAH and SYED TAHIR HIJAZI* INTRODUCTION In Pakistan Mutual Funds were introduced in 1962, when the public offering of National Investment (Unit) Trust (NIT) was introduced which is an open-end mutual fund. In 1966 another fund that is Investment Corporation of Pakistan (ICP) was establishment. ICP subsequently offered a series of closed-end mutual funds. Up to early 1990s, twenty six (26) closed-end ICP mutual funds had been floated by Investment Corporation of Pakistan. After considering the option of restructuring the corporation, government decided to wind up ICP in June, 2000. In 2002, the Government started Privatisation of the Investment Corporation of Pakistan. 25 Out of 26 closed-end funds of ICP were split into two lots. There had been a competitive bidding for the privatisation of funds. Management Right of Lot-A comprising 12 funds was acquired by ABAMCO Limited. Out of these 12, the first 9 funds were merged into a single closed-end fund and that was named as ABAMCO Capital Fund, except 4th ICP mutual fund as the certificate holders of the 4th ICP fund had not approved the scheme of arrangement of Amalgamation into ABAMCO capital fund in their extra ordinary general meeting held on December 20, 2003. The fund has therefore been reorganised as a separate closedend trust and named as ABAMCO Growth Fund. Rest of the three funds were...
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...the project is probably a good one (in terms of cost only). The cost of capital takes into account the cost of debt and the cost of equity. The cost of debt could be the effective interest or coupon rate a firm currently pays on its debt. It could also be the rate of return required by a firm’s creditors. The cost of debt is often calculated net of taxes, since firms can deduct interest expense from their income for tax purposes. The after-tax cost of debt is equal to the pretax cost of debt times one minus the firm’s marginal tax rate. Common types of debt are loans and bonds. A firm’s cost of equity is the return its stockholders require. It is the rate investors require accounting for the time their money is tied up in a firm and the risk they encounter in doing so. It can be calculated in two main ways, although there are many possible...
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...Portfolio Modeling and Evaluation: Beating the Market ABSTRACT During the period of 2005 to 2010, the market portfolio (P1) and one suggested portfolio (P3) post a positive absolute return of 0.80% and 0.82% respectively which underperformed the active fund portfolio (P2) 0.91%. This report follows various modeling methods in order to back test the performance of the active fund portfolio and compare its performance with that of two other portfolios. The findings indicate that, even though P2 achieves the highest return on the overall performance, the limitations such as the macro environment, the assumptions set, and the Shrinkage method used that accidentally downsizes some valuable stocks in out-‐samples as they are closely correlated are being ignored. By contrast, P3 will probably offer a “middle-‐choice” which will bring a promising and more stable return. 1 Portfolio...
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...and indirect channels in Taiwan insurance marketing Chiang Ku Fan and Shu Wen Cheng Graduate Institute of Finance and Insurance, Shih Chien University, Taipei, Taiwan, Republic of China Abstract Purpose – The purpose of this paper is to compare the efficiency of bancassurance, an indirect marketing channel formed through the creation of subsidiaries, with an insurer’s own team, a direct marketing channel, in the Taiwan insurance sector. Design/methodology/approach – This paper uses the Charnes, Cooper, and Rhodes (CCR) model to measure the decision-making units’ (DMU) operating efficiency. Findings – The three major findings are: the efficiency score of a direct marketing channel is significantly higher than that of a comparable indirect marketing channel. The efficiency relationship between the indirect marketing channel and the direct marketing channel is independent. A marketing efficiency evaluation, when divided into different marketing channels for evaluation, provides meaningful results for marketing decision-makers. Originality/value – By comparing the efficiency between two different insurance marketing channels, managers in life insurance companies can make a more informed choice. Keywords Direct marketing, Marketing, Insurance, Taiwan Paper type Research paper Comparison of direct and indirect channels 343 Introduction Bancassurance, a method of distributing insurance products, has become a global trend that is gradually breaking down traditional barriers in how businesses...
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...* Contents 1. Executive Summary 3 2. Analysis Model 3 3. Company Overview 3 4. Industry Outlook 3 5. Company Evaluation 4 Free Cash Flow Estimation 4 Cost of Equity, Cost of Debt, WACC Calculation 5 Discounted Cash Flows and Company Evaluation 5 6. Sensitivity Analysis 6 7. Final Recommendations 6 8. Appendix 7 Appendix 1: Historical Free Cash Flow Analysis 7 Appendix 2: Historical Free Cash Flow Analysis 8 Appendix 3: Growth Estimations 9 Appendix 4: 2012 Operating Expense Growth Estimation 10 Appendix 5: Income Taxes 11 Appendix 6 11 Working Capital, Depreciation and Amortization, Capital Expenditure Estimation 11 Appendix 6 Part II: Estimations Summary 12 Appendix 7: Free Cash Flow Estimation Analysis (in mln. €) 13 Appendix 8: WACC Calculation 14 Appendix 9: Equity Evaluation 16 Appendix 10: Sensitivity Analysis 17 9. References 18 Executive Summary This report discusses the possible profitability of investment in shares of the Allianz Group SE. Our analysis, based on discounted cash flows and weighted average cost of capital, suggests that under the assumption of stable economic growth, no drastic escalation of the European sovereign debt crisis and industry shocks due to natural disaster like the hurricane Sandy, the current share price of the company is currently below its estimated value and thus a promising investment opportunity. If the company manages to keep its stable growth in the last quarter of the year...
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...UV0402 Rev. Apr. 8, 2014 APPLYING THE CAPITAL ASSET PRICING MODEL This note discusses how some of the most financially sophisticated companies and financial advisers estimate the cost of equity capital. We particularly focus on areas where finance theory is silent or ambiguous, and practitioners are left to their own devices. Conclusions are based on interviews with two groups: (1) well-regarded firms ranked by peer companies as industry leaders and (2) a sample of 11 of the most active financial advisers (investment banks). For context on academic advice, we also cite recommendations from topselling graduate-level textbooks and trade books in corporate finance.1 Findings The Capital Asset Pricing Model (CAPM) is the dominant model for estimating the cost of equity, with over 90% of firms and all the financial advisers employing this model. Moreover firms and advisers seldom mentioned other asset-pricing models. Yet disagreements exist on how to apply the CAPM. The CAPM states that the required return (R) on any asset can be expressed as Equation 1: R = R f + ( Rm - R f ) (1) 1 Survey evidence and much of the discussion is adapted from T. Brotherson, K. Eades, R. Harris, and R. Higgins, “‘Best Practices’ in Estimating the Cost of Capital: An Update,” Journal of Applied Finance 23, no. 1 (2013), which is an update of an earlier article: R. Bruner, K. Eades, R. Harris, and R. Higgins, “‘Best Practices’ in Estimating the Cost of Capital: Survey and...
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...-1? “ The Aim of the Course To develop and apply technologies for valuing firms and for strategic planning to generate value within the firm. • • Features of the approach: A disciplined approach to valuation: minimizes ad hockery – Built on theoretical and empirical findings from scientific research I ‘_ Marries fundamental analysis and financial statement analysis – Exploits accounting as a system for measuring value added – Exposes good (and “bad”) accounting from a valuation perspective L Financial Statement Analysis and Security Valuation • • • Integrates financial statement analysis with corporate finance Focuses on technologies that can be used in practice – Based on real world examples Adopts activist point of view to investing – The market may be inefficient 0-1 What Will You Learn from the Course Part I Financial statements and valuation Ch. 1-7 • How intrinsic values are calculated • What determines a firm’s value • How businesses are analyzed to assess the value they create • How financial analysis is developed for strategy and planning • The role of financial statements in determining firms’ values • How to pull apart the financial statements to get at the relevant information • How ratio analysis is employed in valuation • How growth is analyzed and valued • How to calculate the P/E and P/B ratio and what they should be • The value of operations • How to make forecasts and develop valuations • How to assess the quality of the...
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...Summary 5 Introduction 6 Statement of Opportunities and Problems 7 Methodology and Analysis 8 Summary and Conclusions 24 Recommendations 25 Works Cited 27 Appendix 28 LIST OF FIGURES Figure 1: NPC’s yield curve 10 Figure 2: Project evaluation 10 LIST OF TABLES Table 1: Bond yield and cost of debt 9 Table 2: Sinking fund cash flow 11 Table 3: Own-bond-yiel-plus-risk-premium 12 Table 4: Cost of Equity, CAPM 14 Table 5: Cost of Equity, DCF 15 Table 6: Issuance of new common stock 18 Table 7: PNC’s WACC 18 Table 8: Capital budget 19 Table 9: Project evaluation 20 Table 10: Capital structure (weights) 21 Table 11: Capital structure (costs) 21 Table 12: Euro-denominated bonds 22 Executive Summary The cost of capital consists of three parts: cost of debt, preferred stock, and common equity. For bond evaluation we find the yield on the bonds and deduct the taxes, for preferred stock we consider the dividends and flotation costs and for cost of equity there are three different ways to estimate that is described in this report. For PNC the best is to use CAPM, because it considers market risk and that makes more informative to investors. To obtain the cost of weighted average cost of capital we multiply the cost of the above components with the desired weight. The heavier the weight is in certain component the bigger part it finances of the capital budget, and...
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...American Military University The Capital Asset Pricing Model (CAPM) and Discounted Cash Flows Method are different techniques for determining returns on an investment. These concepts deal with the time value of money and the other investment factors. “If decisions are made that ignore the interaction of scale and risk, then cash flows are misvalued and suboptimal operations decisions are made” (Lederer & Mehta). Companies use CAPM and DCF to figure out the greatest potential for highest yield of an investment based on average market returns. The Capital Asset Pricing Model (CAPM) takes the two factors of time value of money and market risk into account for determining risk of investment and returns. “One is the risk of being in the market which is called systematic risk. The other-unsystematic risk-is specific to a company’s fortunes” (Burton, p.20). The two risks are married together, otherwise one would expect to see a positive return on every risk which is never the case. The expected rate of return for the CAPM takes into account risk-free interest rate, a stock beta that determines the relationship between the entire market and an individual investment, and an expected return from a typical market such as the Dow Jones. “The formula states that the expected return of a stock is equal to the risk-free rate of interest, plus the risk associated with all common stocks (market premium risk), adjusted for the risk of the common stock we’re examining,” (www.money-zine...
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...arriott Corporation: The Cost of Capital (Abridged) Executive Summary: The case "Marriott Corporation: The Cost of Capital (Abridged)" focuses on an ideal opportunity to review the capital asset pricing model and the weighted average cost of capital through calculation of the cost of capital for Marriott as a whole. Dan Cohrs is faced with making recommendations for the hurdle rates at Marriott Corporation and its three divisions utilizing CAPM and WACC. This case illustrates how to calculate beta based on comparable companies and to lever betas to adjust for capital structure; the appropriate risk-less rate and market risk premium; the choice of time period to estimate expected returns and the difference between the geometric and the arithmetic average as a measure of expected returns. SYNOPSIS Marriott Corporation began in 1927, and over the next 60 years, the company grew into one of the leading lodging and food service companies in the US. In 1987, the Marriott's annual report stated, "We intend to remain a premier growth company. Our goal is to be the preferred employer and provider, and the most profitable company". Marriott's profits were $223 million on sales of $6.5 billion. In April 1988, vice president of project finance at the Marriott Corporation, Dan Cohrs, must prepare annual recommendations for the hurdle rates at each of the firm's three divisions, including restaurant, lodging, and contract services, as well as...
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...FINS1613 Business Finance Semester 2 – 2009 Version 1.0.0 12th October 2009 Contents Page 3 Page 7 Page 10 Page 14 Page 18 Page 23 Page 26 Page 29 Page 32 Page 38 Page 42 Basic Concepts Introduction to Financial Mathematics The Valuation of a Firm’s Securities Capital Budgeting Capital Budgeting Applications – Part 1 Capital Budgeting Applications – Part 2 Risk and Return The Capital Asset Pricing Model Cost of Capital and Raising Capital Capital Structure Dividend Policy Note: This course has prerequisites and, as such, these notes are written assuming that you have sound knowledge from those prerequisite courses. Business Finance– Semester 2 2009 2 Basic Concepts Basic Concepts Background Before we delve into the harder components of business finance, it is imperative that we learn the basics first. Types of Business Forms If you have previously studied Business Studies for the HSC, you can skip this section. Businesses are usually formed based on a set structure. The most common of these are: • Sole Proprietorships This is where the business is owned by a single person. It is very simple, fast to establish and generally has very minimal government regulations. The owner gets to keep all the profits himself so there is incentive to work harder. The downside is that it has unlimited liability (where if the business goes bankrupt, everything the owner owns can be taken by creditors). There is also difficulty in raising large sums of money as you are a single...
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...On June 16, 1911, in Endicott, New York, the company International Business Machines came into existence. Today the company known as IBM, is on the Public Limited Company that is listed on the New York Stock Exchange. IBM has proved opportunity to many by proving about 400,000 people with worldwide opportunity in sales. This employment has helped the company to generate at least 100 billion dollars in sales. IBM has many subsidiaries such as ADSTAR, Lotus Software, ILOG, Saudi Business Machines, and Science Research Associates. IBM has been offering new businesses with opportunities to develop fresh new business designs that will help them to come out in full force. The company also offers technical architectures that allow their businesses the flexibility required to compete in the global business landscape. IBM has continued in expansion in adjusting its footprint toward emerging geographies, tapping their double-digit growth, providing the technology infrastructure they need, and taking advantage of the talent pools they provide to better service the company’s clients. The analysis for the return on equity was slightly higher in 2008 than it was for 2007. The global financing after the income taxes was $1049 in 2008 and $877 in 2007. The global financing after the income taxes was $877 in 2007 and $914 in 2006. The global financing after taxes fell $37 in 2007. The price rose again by $172. The average global financing equity was $3572 in 2008 and $3365 in 2007. The...
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... 13020841107 Suraj Garg 13020841116 SECTION B BATCH OF 2013-2015 TABLE OF CONTENTS 1. Introduction to the product and company mechanism (stage gate) 2. Identification of opportunity 3.1.1. Theory 3.1.2. Opportunity recognition 3.1.3. Opportunity Development 3.1.4. Opportunity Evaluation 3. Categorizing the new product 4.1.5. Disruptive innovation and Blue ocean 4. Idea Generation 5.1.6. Technique 5.1.7. Exercise 5.1.8. Methods 5. Idea screening 6. Concept Development 7. Concept Testing 8. Market Development Strategy 9. Business Analysis 10.1.9. Projected cash flows 10. Product Development 11. Market testing 12. Commercialization 13. Justification 14.1.10. Technical Justification 14.1.11.1. Feasibility 14. Marketing Strategy 15.1.11. Sprinter Model 15.1.12.2. Marathon Model 15.1.12.3. 4 Ps 15. Conclusion 16. Appendix 17.1.12. NPD and PLC 17.1.13. Roger’s Innovation Diffusion Model INTRODUCTION: The group came out with innovative ideas for a new product in the market. The new product would be launched by AUL Inc., a company that deals in cloth manufacturing and chemical plants. The product that the group thought of is self-washing clothes. How this works is, that the cloth is treated with a solution of nano particles during the manufacture...
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...compound interest is given by … b. P*(1+I)T 4. Firms resorting to “Proactive Growth” a. do constant strategic planning 5. SPACE stands for Strategic Position and Action Evaluation 6. Increasing market expenditure heading to an increased market share is known as … c. market expansion 7. If profit after tax is ‘A’, depreciation be ‘B’ and interest be ‘I’, then Interest cover ratio is given by 8. E-V rule is also called … 9. In case of internally generated funds the opportunity cost to the firm is … b. the lending rate 10. ‘PERT’ stands for Program Evaluation and Review Technique. Part Two: 1. Write a note on ‘Sinking Fund Payment’. Answer: A sinking fund is a means of repaying funds that were borrowed through a bond issue. The issuer makes periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market. Rather than the issuer repaying the entire principal of a bond issue on the maturity date, another company buys back a portion of the issue annually and usually at a fixed par value or at the current market value of the bonds, whichever is less. Should interest rates decline following a bond issue, sinking-fund provisions allow a firm to lessen the interest rate risk of its bonds as it essentially replaces a portion of existing debt with lower-yielding bonds. From the investor's point of view, a sinking fund adds safety to a corporate bond issue: with it, the...
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...for credit risk, starting on what is designated as Standard Approach, in which banks must allocate capital according to regulatory rules, and finishing on what is designated as the Advanced IRB Approach, in which banks must allocate capital based on their own risk evaluation and on the committee guidelines for that evaluation. The committee defines several guidelines for the IRB Approach depending on the type of credit exposure but, technically, we can group the several lines of attach into two ways of deal with the credit portfolio, the rating approach, for the major exposures like banks, sovereigns and corporate; and the segmentation approach for retail and small business exposures. The most accepted credit risk frameworks are rating based models since, historically, the aim of the models was the bond market, the market of debt securities issued by stable corporations, banks and states. In this market, the assumption that a debt security is less risky than other debt security become the essence of the market, since debt issuers need to disclose information to lower the price of the debt security, affected by a risk premium over the interest rate. And the disclosed information includes rating agencies evaluations of financial figures, operational processes, company market risks, costumer risks, etc…. A bond issuer to be ratted at a high grade must be completely ‘undressed’ and accompanied by a rating agency and, with a very good probability, the rating agency evaluation is valid...
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