Investment and Portfolio Analysis Essay Example | Topics and Well Written Essays - 3000 words - 1

Investment and Portfolio Analysis - Essay Example102-103). Such the yields are available for the public. For instance, one drive out easily find them on the Internet. The characteristics of a bond determine timing and values of associated cash flows. Therefore, an investor feces easily discount all cash flows associated with a bond to mental image out fairly wide estimate of its value. As for the common stocks, the company that issues the stock john invest some portion of its compensation in projects in hope to increase the value of the firm. The rest of the earnings is distributed among the shareholders in the form of dividends. Unfortunately, the expound on forthcoming projects are not generally public information (Ross, Westerfield and Jaffe 1999, p. 109). Therefore, the patterns of cash flows shareholders receive are not known in advance and can be much more complicated than those bondholders receive. However, a number of techniques for stock valuation were developed. All of them need as input investors required fork over on the stock and growth rate of one or several indicators of companys performance such as dividends, earnings, cash flow or sales (Reilly and Brown, 2003, p. 377). To estimate the first input, investors can use the return of a common stock of the respective class and rating as a useful benchmark (Haugen, 1979, p. 68). cod to above mentioned complexity, accompanied by the fact that the guarantees to the investors in common stocks differ from the ones to the investors in bonds, sometimes these inputs can be estimated only roughly. Moreover, their uncertainties can turn out to be too large to be practicable (Ross, Westerfield and Jaffe 1999, p. 111). Thus, generally investors produce better estimates of bond values than those of common stock ones.To identify appropriate investments, portfolio managers figure out a set of marketwide and industrywide factors that makes unsystematic risks of