MBA IN FINANCE AND BANKING

MBF 2263 PORTFOLIO MANAGEMENT

Title : INDIVIDUAL ASSIGNMENT

Due Date : AUGUST, 1ST 2017

Lecturer : DR SOUMY

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Table of contents
................................................................................................................................................ 1
SUBJECT 1: HOW DO INVESTORS MEASURE RATES OF RETURN AND RISKS? ...................... 3
INTRODUCTION ................................................................................................................ 4
I-DEFINITION .................................................................................................................... 5
I-1Return ................................................................................................................................. 5
I-2 Risk ................................................................................................................................... 6
Economic risks ......................................................................................................................... 6
The risks of industry ................................................................................................................. 7
Business risk ............................................................................................................................ 7
The category of assets to .......................................................................................................... 7
II-What are the stakes of investors? .................................................................................. 7
II-1 The risk of profitability ....................................................................................................... 8
II-2 Liquidity risk ...................................................................................................................... 8
III-What are the criteria for investors at the project level? ................................................ 8
IV-What are the criteria of investors at the level of their portfolio? ................................. 10
V-Historical volatility ...................................................................................................... 11
V-1 Key complementary indicators ......................................................................................... 11
V-2 Hidden risks ..................................................................................................................... 12
CONCLUSION .................................................................................................................. 12
SUBJECT 2: WHAT CHARACTERISTICS DETERMINE THE QUALITY OF MARKET? ................. 14
INTRODUCTION .............................................................................................................. 15
I-1 Meaning of quality ............................................................................................................ 16
II-Characteristics of quality ............................................................................................. 17
II.1 The company's objectives ................................................................................................. 17
II-2. Customer Objectives ....................................................................................................... 17
CONCLUSION .................................................................................................................. 18
REFERENCES ................................................................................................................... 19

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SUBJECT 1: HOW DO INVESTORS MEASURE RATES OF
RETURN AND RISKS?

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INTRODUCTION

Because investors are willing to take more risks than in exchange for a higher expected return.
Symmetrically, an investor wishing to improve the profitability of his portfolio must accept to
take more risks.
Each investor is more or less "risky", he has his own appreciation of the "optimal" risk / return
balance.
Risk behaviour also depends on the amount to be saved. If the amount of savings is large, the
investor can devote part of the total amount to risky investments. On the other hand, if the level
of saving is low, investments with low returns but safe are preferred.

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I-DEFINITION

I-1Return
Returns are always calculated as annual rates of return, or the percentage of return created for
each unit of original value.
Returns are created in two ways: the investment creates income or the investment gains or
loses value. To calculate the annual rate of return for an investment, you need to know the
income created, the gain in value, and the original value at the beginning of the year.

Although information on past and current returns is useful, investment professionals are more
interested in the expected return on investment, which means how much they could expect to
earn later. Estimating the expected return is rather complicated because several factors,
current economic conditions, industry conditions and market conditions may have an impact
on this estimate.

If the period is broad, we can reasonably think that the average return on an investment over
time is the return we can expect the following year.
Returns are the value created by an investment, either by income or by gains. Returns are also
our return to invest, to take into account some or all the risk of investment, be it a company, a

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government, a real estate or a work art. Even if there is no risk, we must be paid for the use of
liquidity as we give up the investment.
Returns are the advantages of investment, but they must be more important than its prices.
There are at least two prices to invest: the opportunity cost of giving up the money and giving
up all your other uses of that cash until you recoup it in the future and that the cost of risk
You may not have Everything is back.
I-2 Risk
The investment risk is the fact that an investment will not be able to proceed as planned, that
its actual return will deviate from the expected return. The risk may be known by the amount
of volatility, the difference between actual and average expected returns. This difference is
called the standard deviation. Returns with a large standard deviation, showing the greatest
variance from the mean, have higher volatility and represent more risky investments.
An investment can do better or worse than its average. Thus, the standard deviation can be
used to define the expected range of investment returns.
What are the risks? What would cause an unexpected additional cost or underperformance of
an investment? From the top and the work, there are:
economic risk
risks of the industry
business risk,
asset class risks
market risks.
Economic risks can be detrimental to the economy as a whole. The business cycle can move
from expansion to recession, for example; Inflation or deflation may increase, unemployment
may rise or interest rates may fluctuate. These macroeconomic factors do not spread all the
players in the economy. Most companies are cyclical, growing when the economy develops
and contracts when the economy contracts. Consumers tend to spend more disposable income
when they are more confident about economic growth and the stability of their jobs and
incomes. They tend to be more willing and able to finance purchases with debt or credit,
expanding their ability to buy durable goods. Thus, demand for most goods and services is
increasing as the economy develops, and so do businesses. An exception are counter-cyclical
companies. Their growth is increasing more and more when the economy is in a slowdown
and slowed down as the economy grows. For example, low-cost fast food chains have
generally increased sales in an economic downturn because people are replacing fast food

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restaurants with more expensive restaurants because they are more concerned about the loss
of their jobs and Their income.
The risks of industry generally involve economic factors that affect an entire industry or
technological developments that affect the markets of an industry. An industry like real estate
is vulnerable to fluctuations in interest rates. A change in interest rates, for example, makes it
more difficult for people to borrow money to finance spending, which depresses the value of
real estate.
Business risk refers to the characteristics of specific firms or firms that affect their
performance, making them more or less vulnerable to economic and industrial risks. These
characteristics include the amount of the company's debt financing, the creation of economies
of scale, the efficiency of its inventory management, the flexibility of its labor relations, and
so on.
The category of assets to which an investment belongs may also influence its performance
and risks. The assets of the investments are classified according to the markets they market.
Generally defined, asset classes include
corporate actions or shares;
corporate or government bonds or debts;
products or resources;
derivatives or contracts based on the performance of the other underlying assets;
real estate;
Fine arts and collectibles

II-What are the stakes of investors?

The remuneration the investor can expect from the investment is of several types:
During the term of the investment, in respect of dividends and any interest. Nevertheless, in
the context of a business start-up project, the probability of dividend distribution is very low,
as the net book value is reinvested in the company to finance its development. Interest related
to an investment in bonds generates remuneration but is insufficient in relation to the risks
taken,
In the event of the resale of the securities, the potential capital gain realized. The
remuneration of the private equity company results from the difference between the sale price
and the purchase price of each security. This added value depends on the value created by the
company in the meantime, and the palatability of the market at the time of resale.

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For the investor, at the level of an investment, the risks to be evaluated are therefore the
following:
II-1 The risk of profitability

This is that the resale of its shares in the company does not allow it to achieve a level of
profitability deemed sufficient. In order to realize a significant increase in value, the sale
price must be considerably higher than the purchase price, and thus, in the interim, the
company has created more value. A company that would show consistent results, while
profitable, would not be a good deal for an investor. The return on investment for an investor
is calculated in the form of the IRR (= Internal Rate of Return), which takes into account the
amount of the capital gain and the period during which the investment is blocked,
II-2 Liquidity risk

The investor has acquired securities of the company; It must be able to resell them at term at
5 years on average. The risk is that investor-managed funds have limited lives typically 10
years, and that investors are required to repay their investors with a capital appreciation at
maturity of the fund. They must be able to sell their securities by the maturity date of the fund
in good conditions.
When the company does not have a sufficiently attractive economic situation to find buyers,
the investor is said to be "stuck" to the company because he cannot sell his securities and
therefore cannot make his money "liquid" participation. An investor's decision-making
criteria are multiple, but they all aim to ensure that the risks taken are measured and fall
within its overall investment strategy.

III-What are the criteria for investors at the project level?

To assess these risks, the investor will therefore analyze several aspects:
The potential for value creation with an average horizon of 2 to 7 years. This potential
must be high to interest the investor. It seeks either a company with high growth
potential (venture capital), or a company already generating significant profitability
(development capital),
The potential for the sale of futures securities. For an investor, there are several exit
routes, mainly:

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Industrial cession: resale of securities to an industrial group,
-Initial Public Offering,
Sale of securities to historical shareholders,
Securities sold to new investors,
-Reduction or amortization of capital (very unfavorable case),
But only the industrial cession and the IPO are highly profitable, as IPOs are much more rare.
The investor will seek to ensure that such an exit is possible in the long term. That's why,
before you even get back to capital, the investor will ask you what your strategy is and how
they can get out. If you bring investors into the capital, you must have integrated this term
resale.
Affectio societatis and confidence in the management team to achieve these
objectives of creating value, and negotiating a resale of securities at the highest
possible price.
These criteria are based on more concrete criteria for project analysis:
The nature of the product and the market. Notably the estimated size of the market,
the growth and seasonality of the business,
Strategy and competitive dynamics. In particular, the nature and level of competition,
the power of suppliers and distributors, the ability to block the penetration of new
entrants,
The capacities of the management team. Notably the leadership and experience of the
manager and his managerial team, organizational and administrative skills, marketing,
sales and production capabilities,
Financial projections. In particular, the deadline for achieving the break-even point
and the expected rate of return. Link between the opportunity and the objectives set
for the required funds. Venture capital companies must be attentive to their portfolio
and to their investors' commitments regarding the type of investments they make
(such as business start-ups, takeovers by employees, etc.). Of the investment
transaction.
Specific nature of the investment, level of development of the company, possibility of
bringing together several investors in the operation and investing in several stages at more
advanced stages of growth. The following criteria should be taken into account:
Investors are primarily interested in whether the manager and his team have the
"leadership" and management skills required to carry out the project. This reasoning is
logical because these qualities condition the rest of the project.

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 The second criterion is the value proposition and the market potential. The entrepreneur
must have a clear product / market strategy, based on an original product / service to
create barriers to entry. It is essential that it has credible financial information that clearly
indicates the expected time to reach the break-even point.
The nature and level of competition in the market are less important than the apparent
ability of the management team to maintain and to defend its market share.
Financial projections have a certain weight but are less important than management and
potential considerations because they are only effective when the project has become a
reality. Investors are well aware that all this information will be of no avail if the
opportunity is not strong.

IV-What are the criteria of investors at the level of their portfolio?

Know that there are other criteria, criteria " Macro "in the broader portfolio. These criteria are
often not expressed openly, yet they are just as important as those related to the quality of the
project, and it is harder to know them. The expectation of profitability of the portfolio is
obviously linked to the expectation of profitability for each participation. But the
achievement of the investor's medium- and long-term objectives is also based on the overall
strategies that he will adopt in managing his portfolio. This is even more the case at early
stages of intervention. The portfolio diversification responds to the adage that "we do not put
all our eggs in one basket". In addition, it offers investors the opportunity to increase the
medium- and long-term returns of their portfolios. The diversification of a portfolio involves
allocating the total amount:
Between categories of investment vehicles, When the management company has several
funds,
Within the same group of thieves, for example stocks or bonds,
Between securities from different industrial sectors.
Through an appropriate mix of sectors, the investor reduces his vulnerability to the
difficulties that a sector may face and tries to take advantage of or to the maximum of the
favorable conjuncture that a sector can benefit at a given moment. Investors have criteria
related to their investment timelines:
For funds linked to the ISF, they often have to invest a lot

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 When the term is shortened before the end of the life of the fund, investors will preferably
choose companies for which the possible exit time is as short as possible.

Any investment is motivated by the hope of a return, a financial gain, but necessarily
involves risk taking. For the investor, the risk represents the possibility of suffering at some
point the loss of some or all of its capital. In theory, the more risk the investor takes, the
higher his or her earnings expectation. In practice, the investor will therefore have to assess
the performance of a fund in terms of the risks taken to achieve that performance, but also to
verify that the fund corresponds to its own risk profile, that is to say It is willing to accept the
risk that a particular fund has to meet its performance objective.

V-Historical volatility (measured by the standard deviation)

It is the most widely used risk indicator in finance. It measures the dispersion of an asset's
prices relative to an average over a given period. The more volatile an asset, the higher its
risk level. The fact that the price of an asset can vary is inherent in its fundamentals, the
results of a company for example but also related to external factors, such as the psychology
of investors. However, the latter can evolve in a brutal way, and the volatility of an asset can
be high in the short term without it being necessarily risky. Conversely, an investment may
seem calm for a period of time until a specific event takes place and causes its volatility to
jump. The investor will therefore have to measure the volatility over several periods 1 year, 3
years, 5 years or even 10 years depending on the information available and provided that the
fund has had the same manager and the same strategy During these periods.
V-1 Key complementary indicators

In addition to the long-term volatility of the fund, a sense of common sense is to look at the
maximum loss suffered, especially in the troughs of the market, but also more generally the
fund's behavior in different phases of a full market cycle.
For example, the fund's sensitivity to market fluctuations should be examined with the beta
coefficient. A fund with a beta greater than 1 will tend to progress more than the market in
bullish phase, but also to be less resistant in bearish phase. For an index fund whose objective
is to replicate as closely as possible the performance of a stock index, or for funds whose
management is constrained in relation to their benchmark, the investor will have to calculate

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the replication error or "tracking error", which corresponds to the standard deviation of the
fund's relative performance relative to its index.
V-2 Hidden risks

Rather than relying solely on past performance, it is also necessary to look at the sum of the
active bets relative to the index or "active share", which is based on the composition of the
portfolio.
It measures the percentage of the fund's assets that differ from those in the benchmark. The
closer it is to 100%, the less the fund holds assets in common with its benchmark.
This also means that the fund's performance may deviate significantly from that of the index.
The investor must finally look at what the fund holds in the portfolio in order to identify
potential risks that have not yet occurred.
These are multiple and may include too much exposure to a security, sector or country, or
macroeconomic factors such as growth in China or the price of oil.

CONCLUSION

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Volatility is not the only measure of risk as we have just seen. The most important question
that an investor must ask is: "Will the current allocation of my capital allow my portfolio to
maintain my purchasing power in spite of the ups and downs Economic cycles? "
The overall pension fund portfolio is well structured to reach revenue streams over time while
maintaining sufficient revenue growth to build capital and to deal with the increase in its
pension liabilities over the years. The overall portfolio of individuals is positioned very
similarly when looking at the asset mix and the underlying components of their balanced
funds. Mutual fund flows over the past five years indicate that the entire population is placing
their new savings very cautiously.

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SUBJECT 2: WHAT CHARACTERISTICS DETERMINE THE
QUALITY OF MARKET?

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INTRODUCTION
Quality is increasingly an essential variable for any company that offers goods and / or
services in a market. The quality of a product covers its performance, but also its availability.
It has become an essential argument for companies because essential criterion of choice for
customers. It is a factor which the former must know how to achieve so as to avoid the latter
being able to question it.

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I-Definition of quality
Quite often, the term "quality" is interpreted in many different ways. In the everyday
language, we speak of quality products, which means that the customer is satisfied with the
goods and services offered. For him, quality is synonymous with satisfaction. For the
company, on the other hand, quality implies, for example, the rapid availability of products at
advantageous costs.
I-1 Meaning of quality

It is common to distinguish between products (materials) and services (intangible). However,

with the development of the enterprise, the term "product" tends to impose itself to designate
both. This fusion, endorsed by the international standardization on quality, has its reasons and
above all the advantage of simplicity; As more and more products and services are associated
in the supplies and services of companies. The product is defined as the result of a set of
correlated or interactive activities that transforms input elements into output elements. This
set of correlated or interactive transformative activities is referred to as "process". In other
words, products and services are "the result of a process" The term "quality" can be
ambiguous, given its multiplicity of meaning, and its definition has been clarified at the level
of the International Organization for Standardization (ISO) Moreover, quality can be defined
according to the socio-economic and cultural context of the environment in which one finds
oneself. Every community has its own values and us. In particular, Africans are most often
accused of roughly applying what comes to them from outside. Nevertheless, one must never
lose sight of the fact that what is elsewhere is also found at home, but in other forms or
appellations; and also that so many theories and practices of African origin have been
expatriated to come back to us in other forms that we even sometimes find difficult to
recognize. Thus, even if this is not so perceptible, Africans were using management methods,
which are now comparable to the tools used in quality management; Well before the advent
of formal quality management practices and concepts. At all times, in our villages or
countryside, when there is a problem concerning the whole village or a member of the
village, there is a meeting to solve this problem. Under the palaver tree, each of the sages or
notables gives his point of view and proposes his solution for solving the problem or the
subject, an object at palaver. At the end of the meeting, one or more proposals are selected,
and the decision to implement this solution is taken by the chef and applied according to his
requirements. This decision, taking into account all the environmental and customary aspects,
is all the more efficient and effective, but only of a socio-cultural nature. Of course, the

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economic nature is added to the scale of the company. Africans, by their very nature, are no
strangers to certain aspects of standards, whatever their content.

II-Characteristics of quality
Characteristics of quality are very diverse depending on the type of "product" proposed. For a
material product, the characteristics are dimensional, physical, chemical, sensory, etc. and
also of functioning respect of performances, of consumption. In addition, there are
characteristics which ensure the maintenance over time of the suitability for use and
characteristics related to the safety of use and the absence of nuisances. For a service, on the
other hand, the characteristics include, depending on the case, relational aspects, atmosphere
and comfort, time-related aspects (respect of schedules), provisions to facilitate the user's task
(simple forms, clear notices). These characteristics all contribute to the satisfaction of users'
needs. In fact, quality is "in the product". It is intrinsic to the product (or service). It is not this
thing in addition, which is added after the design of the product. There is not in a company
people who make the product and others who make quality. It is by making the product,
throughout its conception and realization, that it is made to have all the required
characteristics, that is to say the desired quality.
II.1 The company's objectives
The company is a set of facilities and people with responsibilities, powers and relationships.
It is an economic actor producing goods and services for other actors, with the aim of
generating profits. Its objectives relate to its obligations to the outside world (customers and
society) and to itself. It also has commitments that it must honor with respect to all the factors
that make it up. The company must satisfy the customer. It is driven to espouse the point of
view of it as to quality. It must provide it with the required quality and confidence in it. Also,
to customers tied to it by contract, the Undertaking must comply with the contractual clauses
regarding quality, price and deadline. This, in turn, constitutes "external" objectives to be
attained. The "internal" objectives come from the obligations of the company towards its staff
and its shareholders; Or in a general way, towards those who put the means at their disposal.
It is looking for profitability, competitiveness, sustainability and progression. Improving the
quality of its supplies and services, gained by better process control, is an essential factor of
profitability and competitiveness.
II-2. Customer Objectives
The client is a person or group of people who receives a product or service for payment and
who benefits from the benefits of that product or service. The term "customer" applies to the

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company, the consumer, the end user of a product, the retailer, the beneficiary or the buyer.
The customer is the most important actor of the company, because it significantly determines
the survival and the very development of it. Its objective, in terms of the quality of products
or services offered to it by the company is most delicate. The customer wants to have as high
a probability as possible, if not absolute certainty, that the product or service he will have will
meet his needs. He is very attentive to the quality of what he acquires. The objectives of the
customer, in relation to the products and services of a company, are gathered under the name
"customer requirements". Its relations with the company are most often limited to the
satisfaction of its requirements, and therefore its needs or expectations formulated implicitly
and why not imposed.

CONCLUSION
Nowadays, the impact of quality has deepened considerably, as it affects not only the product
but also the manufacturing processes, equipment and people, the organization and all the
working procedures within of the structure. Beyond the quality of the product, one must

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glimpse all aspects and factors contributing to the finished product. It is therefore necessary
to become familiar with the quality management.

REFERENCES

https://sentry.ca/fr/gestionnaires/commentaires-sur-le-march/commentaries-sur-le-
marche-detail.html?com=3462

http://www.lafinancepourtous.com/Decryptages/Dossiers/Epargne/Le-couple-
rendement-risque

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https://saylordotorg.github.io/text_personal-finance/s16-03-measuring-return-and-
risk.html

http://production-management.over-blog.com/article-le-management-de-la-qualite-la-
notion-de-qualite-des-produits-40486631.html

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