Portfolio Management and

Wealth Planning
Doç. Dr. Ayben Koy

akoy@ticaret.edu.tr
 What is an investment?
 An investment is the current commitment of money and other resources in the expectation of
reaping future benefits.
 What is a Portfolio?
 Portfolio is a collection of investments assembled to meet one or more investment goals.
 Investment Vehicles

Investment Assets

Financial Assets Real Assets

 Real Assets
 Land,
 buildings,
 machines,
 knowledge that can be used to produce goods and services.
 Financial Assets

Financial
Assets

Money Capital Crypto

Market Market
Investment Investment
Derivatives Investment
Vehicles Vehicles Vehicles
 Financial Assets

Money Market Capital Market Crypto Investment

Derivatives
Investment Vehicles Investment Vehicles Vehicles

Forward
STOCKS Futures Crytptocurrencies
BONDS Options Tokens
Swap
 STOCK
 A stock (equity) is a security that represents the ownership of a fraction of a corporation. This
entitles the owner of the stock to a proportion of the corporation's assets and profits equal to
how much stock they own. Units of stock are called "shares."
 STOCK
 Stocks are bought and sold predominantly on stock exchanges, though there can be private sales
as well, and are the foundation of many individual investors' portfolios.
 These transactions have to conform to government regulations which are meant to protect
investors from fraudulent practices.
 STOCK
 Corporations issue (sell) stock to raise funds to operate their businesses.
 The holder of stock (a shareholder) has now bought a piece of the corporation and, depending
on the type of shares held, may have a claim to a part of its assets and earnings. In other words,
a shareholder is now an owner of the issuing company.

 Ownership is determined by the number of shares a person owns relative to the number of
outstanding shares. For example, if a company has 1,000 shares of stock outstanding and one
person owns 100 shares, that person would own and have claim to 10% of the company's assets
and earnings
 BOND
 A bond is a fixed income instrument that represents a loan made by an investor to a borrower
(typically corporate or governmental).

 Bonds are used by companies, municipalities, states, and sovereign governments to finance
projects and operations.

 Owners of bonds are debtholders, or creditors, of the issuer.

 Bond details include the end date when the principal of the loan is due to be paid to the bond
owner and usually includes the terms for variable or fixed interest payments made by the
borrower.
 BOND
 Face value is the money amount the bond will be worth at maturity; it is also the reference
amount the bond issuer uses when calculating interest payments. For example, say an investor
purchases a bond at a premium $1,090 and another investor buys the same bond later when it is
trading at a discount for $980. When the bond matures, both investors will receive the $1,000
face value of the bond.

 The coupon rate is the rate of interest the bond issuer will pay on the face value of the bond,
expressed as a percentage. For example, a 5% coupon rate means that bondholders will receive
5% x $1000 face value = $50 every year.
 Coupon dates are the dates on which the bond issuer will make interest payments. Payments can
be made in any interval, but the standard is semiannual payments.

 The maturity date is the date on which the bond will mature and the bond issuer will pay the
bondholder the face value of the bond.

 The issue price is the price at which the bond issuer originally sells the bonds.
 Growth-Oriented Portfolio
 primary objective is long-term price appreciation
 Income-Oriented Portfolio

 primary objective is to produce regular dividend and interest income

 An Efficient Portfolio
 Efficient portfolio
 A portfolio that provides the highest return for a given level of risk

 Requires search for investment alternatives to get the best combinations of risk and return
 Return
 The return on a portfolio is simply the weighted average of the individual assets’ returns in the
portfolio.
 Risk
 The standard deviation of a portfolio’s returns is a function of the portfolio’s individual assets’
weights, standard deviations, and correlations with all other assets
 EXAMPLE?

Proportion Holding period return (HPR)

Asset 1 0.30 0.25

Asset 2 0.40 0.15

Asset 3 0.30 0.22

 EXAMPLE?

Proportion Holding period return (HPR)

Asset 1 0.30 -0.05

Asset 2 0.40 0.30

Asset 3 0.30 0.22

 Stock Returns

 Holding Period Return During Period (t) – (Rt)

Pt  Pt 1  D t
Rt 
Pt 1

 where: Pt = price per share at the end of period (t)

Dt = dividends per share during period (t)
 1) Assume that you have invested in Garanti stock in the beginning of november 2020
 ( P = 6.5) and sold at the end of December (10) how much is your return?
 2) If it pays 1 TL dividend between thosedays, how much is the return?
 Stock Returns
 Arithmetic Mean Return – ( R A )
 An unweighted average of holding period returns

R t
RA  t 1
n
R1  R 2  R 3  . . .  R n

n
 Stock Returns
 Geometric Mean Return – ( R) G
 A time weighted average of holding period returns
 Assumes reinvestment of all intermediate cash flows
 The return that makes an amount at the beginning of a period grow to the amount at
the end of the period

1 /n
 n

R G   (1  R t ) 1
 t 1 
  (1  R 1 )(1  R 2 ) . . . (1  R n )
1 /n
1

n
 Note that t 1
stands for “summation of the products.”
 Stock Returns

 Holding Period Returns:

50  100
R1   .50 or - 50%
100
100  50
R2   1.00 or  100%
50
 Price Relatives:

50
(1  R 1 )   .50
100
100
(1  R 2 )   2.00
50
 Reference
 Bodie, Z., Kane, A., & Marcus, A. J. Essentials of Investments 8th Edition. McGraw-Hill.