Guidelines For The Portfolio Management Game

In this course your project report is based on the portfolio management game you would play for 10
weeks by building and then managing 4 portfolios. Initially in each portfolio 100 million Rs would be
invested and then for 10 weeks you would calculate weekly %age rate of return (Rp) on each portfolio.
You would weekly submit to TA a report about rate of return earned by each of the 4 portfolios
showing how you calculated weekly Rp. How would you do that is explained below in some detail.

After 10 weekly report have been submitted, you have data of 10 weekly Rps of each portfolio. You
would use that data to calculate weekly SDp, then convert it into SDp for 10 week, you would also
calculate Rp for 10 week holding period, and then further calculations would be done by you as
explained in the following pages.

Please note you can read below separate instruction for calculating weekly Rp of 4 portfolios: 1. active
portfolio, 2. Passive portfolio, 3. Levered passive portfolio, and 4. Index (market) portfolio. Please do
read those instructions carefully while calculating and reporting weekly Rp of 4 portfolios to your TA
according to the dates given the schedule below. Please use closing share prices reported in the
newspaper of the specific day mentioned below.

 Begin Week 1 of the project by using closing share prices reported in Tuesdays, 2nd Feb 2021
newspaper, these are prices of shares on the last trade done on Monday, Feb 1, 2021 and are
reported in Tuesday, Feb 2 newspapers.
 Then for the three portfolios namely; Passive, Levered Passive and Market, for the end of
week 1 use the price published in the newspaper of Tuesday, 9th Feb 2021. For Active
portfolio , you would do trading once a week using closing prices published in Saturday’s
newspapers.
 And similarly for week 2 the beginning prices are the same as the ending prices of week 1
(published in Tuesday,9th Feb newspapers ).
 The end prices of week 2 are to be taken from Tuesday, 16th Feb newspapers.
 For the Active Portfolio
o You begin construction on the same day as other portfolios i.e. of Tuesday, 2 nd Feb and
week 1 ends using prices of Tuesday, 9 th Feb newspaper. The beginning MV of portfolio
on this date would be equal to:
o No of shares of Co K * purchase price
o No of shares of Co J * purchase price
o No of shares of Co S * purchase price
o No of shares of Co L * purchase price
o No of shares of Co T * purchase price
o And you are advised not to invest all 100 million in stocks while building active portfolio
on Feb 2, rather you should keep some cash , such as 100, 000 Rs, so that you can on
the trading day, Saturday, buy whole number of shares. Usually shares are bought and
sold in whole lot of 50 share. If you order odd lot , say 34 shares, then broker charges
higher commission per share.

Schedule
Begin End Trading in Weekly
Report
Active Submissio
portfolio only n

Week Tuesday, 2nd Tuesday, 9th Saturday, 6th Monday,

1 Feb Feb Feb 15 Feb

Week Tuesday, 9th Tuesday,16th Saturday, 13th Monday,

2 Feb Feb Feb 22 Feb

Week Tuesday, 16th Tuesday,23rd Saturday, 20th Monday, 1

3 Feb Feb Feb March

Week Tuesday, 23 Tuesday, 2 Saturday, 27th Monday, 8

4 Feb March Feb March

Week Tuesday, 2 Tuesday,9 Saturday, 6h Monday,

5 March March March 15 March

Week Tuesday, 9 Tuesday,16 Saturday, 13 Monday,

6 March March March 22 March

Week Tuesday, 16 Tuesday,23 Saturday, 20 Monday,

7 March March March 29 March

Week Tuesday, 23 Tuesday, 30 Saturday, 27 Monday, 5

8 March March l March April

Week Tuesday, 30 Tuesday,6 Saturday, 3rd Monday,

9 March April April 12 April

Week Tuesday, 6 Tuesday,13 Saturday, 10th Monday,

10 April April April 19 April

o You are allowed to buy & sell shares in the active portfolio once every week on Fridays
using closing prices published in Saurday’s newspapers. Do that trading only ONCE
DURING A WEEK using the closing prices published in Saturdays newspaper.
 o For week1 the trading would be done only on Saturday, 6th Feb .
o The ending composition of portfolio on Tuesday,9th Feb would be composed of shares
you have in your portfolio on Tuesday, 9th Feb and these would be same as you had on
Saturday after doing buying and selling on Saturday 6th Feb.
o Calculate the wealth at the end of week 1 ending MV of TA of portfolio. Please note
since there are no loans taken so this is also Ending OE. Ending MV would be
calculated using no of shares and prices on Tuesday 9th Feb

Rp for Week1 = (Ending MV of Portfolio – Beginning MV of Portfolio )/ Beginning MV of Portfolio

(i.e. Tuesday 9th Feb) – (i.e. Tuesday 2nd Feb) (i.e. Tuesday 2nd Feb)

o For week 2 beginning MV of Active Portfolio would be the same as ending MV of Active
Portfolio in week1.
Since in active portfolio there are no borrowed funds so TA = OE and TL =0; and MV of TA can be used
in place of OE to calculate weekly Rp

What you would do with this raw data of 10 weeks is explained below. You would do all those things
mentioned below in your final project report . That includes using 4 portfolio evaluation methods:

As t-bills of 12 months maturity are giving slightly higher than 7 % per year yield in January, therefore
all groups should use 10 week yield of t-bills assuming annual yield of risk free asset is 7%.

So for 10 weeks risk free percentage rate of return , Rf = (7% / 52 weeks) * 10 weeks = 1.3% for 10
weeks,

and ALL GROUPS MUST USE in calculation of Sharpe Ratio, Treynor

Ratio, expected returns from CML, expected returns from SML, Rf for
10 weeks as 1.3% . You calculated weekly Rps for 10 weeks and also
10 week holding period Rp for each portfolio, you must convert weekly
SDp to SDp for 10 weeks. You would do that by multiplying weekly
SDp ( that calculated using weekly Rp data ) with under root of 10.
When all these data are for 10 weeks period , then you can apply that
data to 4 methods of performance evaluation

Methods of Portfolio Manager’s Performance Evaluation

You would apply the following 4 methods of portfolio performance evaluation on each of your 4
portfolio, and from each method you would give ranking of first to 4 th to your four portfolios. It is
possible a portfolio that ranks first according to Sharpe ratio may not rank first according to
Treynor ratio.

1. Sharpe Ratio and Ranking based on Sharpe Ratio

Calculate Sharpe ratio for each of the 4 portfolios and rank 4 portfolios based on their Sharpe ratio;
higher ratio means higher rank. For example for passive portfolio:
Sharpe Ratio for Passive portfolio =
(10 week holding period Rp of passive portfolio - Rf for 10 weeks, that is 1.3%)/ 10 week SD of that
portfolio.
Let us do exercise with hypothetical data. Suppose for passive portfolio, 10 week holding period
Rp was calculated as = (OE end of week 10 - OE beginning of week 1) / OE beginning of week 1.
Say the data was:
=(115 - 100)/ 100 = 15%.
, remember OE beginning of 10 week was 100 million Rs in each portfolio.

Using weekly data of 10 Rp of passive portfolio, you have calculated SD as 3%. This is weekly SD,
you need to convert it to SD for 10 week holding period so that both return and risk data is
available for the 10-week holding period (risk)
You multiply 3% with under root of 10: that is 3% * under root of 10 = 3% * 3.162277 = 9.486, you
can round it to 9.5% , it is SD p for 10 week holding period or total risk of passive portfolio for 10
week holding period.
Now you have data to calculate Sharpe Ratio as shown below:

Sharpe Ratio for Passive portfolio = (Rp - RF) / SDp

Sharpe Ratio for Passive portfolio = (15% - 1.3%) / 9.5%

= 13.7 % / 9.5 %
= 1.14% /1 %

It means excess portfolio return per unit of total risk was 1.14% for the passive portfolio.

That is, if total risk of passive portfolio was 1% (SDp) then excess return of passive portfolio, that
is, (Rp – Rf) was 1.14% during this 10-week holding period

Similarly for the other 3 portfolios you would calculate Sharpe Ratios. Then rank 4 portfolios from
first to 4th based on this ratio
For example you got Sharpe Ratios and gave them ranks as shown below:
Passive Portfolio = 1.14% Fourth
Passive Levered = 3% First
Active Portfolio = 2.5% Second
Index (market) Portfolio = 2% Third
2. Treynor Ratio for each of 4 portfolio and their ranking on the basis of this
ratio

Treynor Ratio of Passive Portfolio =

(10 week holding period Rp of passive portfolio - Rf for 10 weeks)/ beta of that portfolio.
For example : Beta of passive portfolio has been calculated as 1.5; its 10-week holding period Rp
is 15 as we used for Sharpe ratio above; and 10 –week RF is 1.3%
= (15% - 1.3%) / 1.5
= 13.7 % / 1.5
= 9.13% /1
It means excess return of passive portfolio per unit of relevant risk (beta) was 9.13%. That is if
relevant risk (beta) of passive portfolio was 1, then its excess Return, hat is (Rp – Rf), was 9.13%
during the holding period of 10-week. Similarly for the other 3 portfolios you would calculate
Treynor Ratio. Then rank 4 portfolios from first to 4 th based on this ratio.
For example you got Treynor Ratios and gave them ranks as shown below:
Passive Portfolio = 9.13% First
Passive Levered = 4.93% Fourth
Active Portfolio = 5.2% Third
Index (market) Portfolio = 7% second
Now according to Treynor ratio ranking is not same for 4 portfolios as given above by Sharpe ratio.
That can happen, do not worry. That is why there is no agreement about one measure of portfolio
performance evaluation because different methods of portfolio performance evaluation give
different ranking to the portfolio that are being compared. And that is what we saw in our case
that Sharpe method gave first rank to passive levered portfolio, but Treynor method gave first
position to Passive portfolio. Similarly Sharpe ratio ranked passive portfolio as fourth or worst in
performance but Treynor method gives first rank, or best performance, to passive portfolio.

How Would you find beta of each of your 4 portfolios ?

You were taught that beta = COV p, M / VAR M , it is a ratio. So for each portfolio you use 10
weekly Rp observations to calculate its COV with M, whereas M refers to index portfolio which
was one of the 4 portfolios you were playing with in this project. You would also calculate using 10
weekly Rp observations of each portfolio, COV of each of the 4 portfolios returns with the returns
of index portfolio because index portfolio is your M, the market portfolio. You will also calculate
using 10 weekly Rp observation of index portfolio, its VAR, and it is your VAR M. Then You can
calculate passive portfolio beta as = COV passive , Market / VAR Market . suppose COV passive , M = 150 and
VAR M is 100, so beta of passive portfolio = 150 /100 = 1.5. Similarly you will calculate betas of the
other 3 portfolios, and remember that beta of index portfolio would come ONE by definition
because:
BM= COV M,M / VAR M = VARM / VAR M = 1
3. Differential return from CML (capital market line) for passive
portfolio =
Actual Rp - estimated Rp from CML equation
Estimated Rp Passive Portfolio = Rf + [ (RM - Rf) / SDM] * SD passive
Note that actual 10 week holding period Rp of index portfolio you calculated while doing Sharpe
and Treynor Ratios, suppose it is 11%, this is your R M. And index portfolio’s 10 week SD is 5%, you
calculated this when doing Sharpe Ratio above; and this is your SD M for 10-week. And actual 10
week holding period Rp of passive portfolio was 15% and 10 week SD of passive portfolio was
9.5%, both of which you have already calculated for Sharpe Ratio calculations above. so you have
the required data and you insert data in CML equation to estimate theoretical RP for 10 week on
your passive portfolio
Estimated Rp passive portfolio = Rf + [ (R M - Rf) / SD M] * SD of passive
portfolio
= 1.3% + [(11% - 1.3% ) / 5%] * 9.5%
= 1.3 + [1.94] * 9.5
= 1.3 + 18.43
= 19.73%

Differential Rp of passive portfolio from CML (capital Market Line)=

= actual Rp of passive - estimated Rp from CML
= 15% - 19.73%
= - 4.73%
You are REQUIRED to make CML on the graph paper. And show passive portfolio as a dot on the
graph paper where you read on vertical axis its actual Rp 15% and on horizontal axis its actual SD
9.5% . Then you read from horizontal axis 9.5% SDp upward until CML line is touched, that is your
expected Rp that you calculated above as 19.73%. the vertical distance between the dot of actual
Rp and the estimated Rp on the CML line is differential Rp of Passive portfolio from CML and in this
example it is -4.73% (= 19.73 – 15) because dot of actual 10 week holding period Rp at 15% is
below the estimated Rp of 19.73% calculated from CML as shown above.

Now you would conclude that actual risk adjusted return performance of passive portfolio was
much worse than expected performance for the 9.5% SD (total risk) level.

In other words, the theory (CML) says that a portfolio whose total risk is 9.5% should earn 19.73%
but passive portfolio whose risk is also 9.5% actually earned during these 10 weeks only 15%; so
passive portfolio was beaten by the market on as risk adjusted basis.

In the same fashion you would calculate estimated Rp of each of the 3 remaining portfolios and
then differential Rp of each of the three portfolio. Then rank as first , second, third , and fourth
your 4 portfolios based on their differential Rp from CML.
 Please note for index portfolio estimated R M would come out same as its 10 week holding period
actual Rp because in CML equation you enter as R M actual Rp of index portfolio, similarly as SD P in
CML you enter SD of index portfolio which is already there as SD M also. Therefore two SDMs would
cancel out each other, and 2 Rfs would also cancel out leaving you on right hand side with R M and
that would now be estimated Rp of Index portfolio. Therefore REMEMBER that for the Index
portfolio estimated and actual Rp would be same as it is your M, so its differential return from CML
would be ZERO by definition ALWAYS
Once you have estimated differential returns of all 4 portfolios you would rank them, with higher
differential return being given higher rank, For example you calculated differential returns from
CML and ranked them as follows:
Passive Portfolio = -4.73% third
Passive Levered = 9.8% First
Active Portfolio = -4% fourth
Index (market) Portfolio = 0% second (always zero by definition)
You would say passive and active portfolios were beaten by the market on a risk adjusted basis.
Why we say ”beaten by the market”? Because CML line is constructed by taking 2 dots on the
graph and joining them to draw the straight line called CML: one dot where Rf is 1.3% on vertical
axis and SD of Rf zero on horizontal axis. The 2 nd dot on graph paper is placed where the R M (10
week holding period Rp of index portfolio) is on vertical axis and SD M (10 week SD of index
portfolio) is on horizontal axis (in this example RM was 11% and SDM was 5%). Then these 2 dots are
joined to draw straight line, it is called CML. Since actual data of Rp and SDp of index portfolio is
used to draw the line , therefore differential return of index portfolio from the CML would always
be zero. But other three portfolios are likely to have differential returns from CML. If differential
return of a portfolio is positive then the portfolio has beaten the market on a risk adjusted basis
and its dot falls above the CML line on the graph paper; on the other hand if differential return of a
portfolio is negative, as we saw in case of passive portfolio above in our hypothetical example,
then we say the portfolio was beaten by the market on a risk adjusted basis, and its dot would be
placed below the CML line
You Rank all 4 portfolio from first to fourth on the basis of their differential return from CML

4. Differential return from SML, (security market line) for passive

portfolio =
= actual 10 week Rp of passive portfolio - estimated 10 week Rp of passive portfolio from SML
equation using beta of passive portfolio is given below, note it is CAPM equation

Estimated Rp of Passive Portfolio from SML = Rf + (R M - Rf) * BPassive

Suppose 10 week holding period Rp of index portfolio is 11%, R M. And its beta is B M , which, as you
know, is always one by definition. And actual 10 week holding period Rp of passive was 15% and
its beta was 1.5. You already calculated 10 week holding period Rps and betas of all 4 portfolios
while doing Treynor ratio, so you have the data use it now . Inserting data in SML equation (that is
CAPM), you get estimated Rp of passive from SML as:

Estimated Rp passive portfolio = Rf for 10 weeks + (RM - Rf) * BPassive

= 1.3% + [(11% - 1.3% ) * 1.5
= 15.85%

Differential Rp of passive = actual Rp of passive - estimated Rp from SML

= 15% - 15.85%
= - 0.85%
This means , the theory (CAPM) says that a portfolio whose relevant risk is 1.5 should earn 15.85%
return but passive portfolio whose relevant risk is also 1.5 actually earned in these 10 weeks only
15%; so passive portfolio was beaten by the market on a risk adjusted basis.

on the SML graph, the dot for passive portfolio would be where on horizontal axis is beta 1.5 and
on vertical axis is Rp 15; but the SML line passing over the beta 1.5 would have a reading on
vertical axis 15.25%, that is slightly higher than 15%, so the dot for passive portfolio would be
placed slightly below the SML line ; and you would conclude that actual risk adjusted return
performance of passive portfolio was slightly worse than expected performance based on CAPM
theory suggested for the portfolio whose relevant risk level is 1.5 .

Why we say ”beaten by the market”? Because SML line is constructed by placing 2 dots on the
graph and joining them to draw the straight line called SML: one dot where Rf is 1.3% (Rf rate of
return) on vertical axis and beta of Rf is zero on horizontal axis. The 2 nd dot on graph paper is
placed where the RM (10 week holding period Rp of index portfolio) is on vertical axis and B M (beta
of index portfolio) is on horizontal axis; and B M is always ONE by definition as we learned
earlier, while RM in this example was 11%. Then these 2 dots are joined to draw straight line, it is
called SML. This line extends till infinity so you show it extending until the end of your graph paper
page.

Please not data of actual 10 week holding period Rp of index portfolio was used and beta of
index portfolio is one by definition, and these data items were used to place the second dot on
graph paper. while first dot was made where Rf 1.3% on vertical axis and zero Beta of Rf on
horizontal axis was used. Joining the two dots gave the line , therefore differential return of index
portfolio from the SML would always be zero. But other three portfolios are likely to have
differential returns from SML. If differential return of a portfolio from SML is positive then the
portfolio has beaten the market on a risk adjusted basis and its dot falls above the SML; while if
differential return of a portfolio is negative, as we saw in case of passive portfolio above in our
hypothetical example, then we say the portfolio was beaten by the market on a risk adjusted basis,
and its dot would be placed below the SML line
You Rank all 4 portfolio from first to fourth on the basis of their differential return from SML

Please find similarly differential return from SML of other 3 portfolios. Please NOTE AGAIN: index
portfolio by definition would have expected return estimated from SML same as its actual 10 week
holding period return, therefore its differential return from SML would be ZERO ALWAYS

MAKE 2 GRAPHS ON 2 GRPAH PAPERS of 2 straight lines, namely CML and

SML
2 graphs on 2 different graph papers, namely, CML and SML, you would make showing these 2
straight lines in the manner explained above. You will use Rf of 10 weeks 1.3% for all groups, SD
of RF is zero, beta of Rf is zero, R M would be 10 week holding period Rp of index portfolio, SD M
would be 10 week SD of index portfolio, B M would be ONE as it always is 1 for any marker

Note 10 week SD M , 10 week holding period R M of all groups

would be same, and all groups would use same 10 week Rf of 1.3%

Please also show for each portfolio the total risk bifurcated into
non-diversifiable risk = ( B2 portfolio * VAR M ) , Note VARM is VAR of Index portfolio
and diversifiable risks = VAR e portfolio
and total risk of portfolio = VAR portfolio
Please note you would calculate total risk and non diversifiable risk from the data you have already
calculated for of Sharpe and Treynor ratios, but you would not be able to calculate directly
diversifiable risk of any portfolio ( VAR e portfolio ), you would calculate it indirectly as
Diversifiable risk = total risk - non- diversifiable risk
Also show R 2 of each portfolio as :
non-diversifiable risk / total risk = ( B2 portfolio * VAR M ) / VAR portfolio
Please use weekly data of returns that you calculated in your weekly reports for this bifurcation of
total risk into non diversifiable and diversifiable risks, so calculate for this purpose VARs of all
portfolios with weekly data, do not use 10 week holding period SD that you already have
calculated for Sharpe ratio, rather use weekly SD calculated from 10 weekly Rps; and then take its
square to get VAR of each portfolio. You have already calculated beta of each portfolio for Treynor
ratio above now use it, so you are all set to show the bifurcation of total risk into non diversifiable
and diversifiable risks.
Also show correlation of return of each portfolio with market
portfolio (index) as under root of R-squared
 Instructions for each of the 4 Portfolios weekly
Rp Calculations
Instructions For The Active Portfolio
100 mil Rs I give as your OE, you buy shares of a few cos, say 5 cos. Buying is done in lots of 50 shares,
give brief reason for buying those companies.

Please keep some cash , say 5 million initially, you wont be able to invest exactly all 100 million in
shares because buying in lots of 50 shares. Therefore some of 100 million should be kept as cash, it
appears as an asset in your portfolio

All groups do trading only on one same day in this portfolio, Friday, then use closing prices of Friday to
buy and sell, take these prices from Saturday’s newspaper.

On Friday why some shares were sold and others were bought, you must give brief reasons in coupe of
lines for dropping a co from your portfolio, for adding share of another co in your active portfolio.

Each week , starting from beginning of week one, make balance sheet of portfolio. In beginning of week
one, it would look like:

TA = TL + OE

100 = 0 + 100

TA would include MV of shares you bought and cash

End of week one balance sheet may look like:

TA = TL + OE

103 = 0 + 103

Rp for week one =( OE ending - OE beginning) / OE beginning

= (103 - 100) / 100

= 0.03 or 3%

TA of portfolio means shares at their current price on the last day of the respective week plus any cash
left

Hypothetical example

Beginning of week One TA of Portfolio

Co No of shares Price MV mil Rs

(millions)

PIA 1 20 20

PTC 2 30 60

Cash 20

Total 100

Balance Sheet Beginning of week one

TA 100

TL 0

OE 100

Trading done Friday week 1

Co Shares No mills Price RsMV mil Rs

Sold PIA 1 mil shs at 25 Rs

PTC 2 mil shs at price 30 60

Bought Engro 0.5 mil shs at price 40 20

cash 20+ sold PIA 25- Buy Engro20 25

Total Assets after trading 105

End of Week One TA of Portfolio, It is also Beginning of week 2 portfolio

Co Shares No mills Price Rs MV mil Rs

PTC 2 40 80

Engro 0.5 30 15

cash 25

Total Assets pf portfolio 120

Balance Sheet end of week one, It is beg of week 2

TA 120

TL 0

OE 120
Rp end of week one = (OE end - OE Beg) / OE Beg

Rp end of week one = (120 - 100)/100 = 0.2 or 20%

Trading done Friday week 2

Co Shares No mills Price Rs MV mil Rs

PTC 1 50 50 Sold 1 mil PTC at 50, kept 1 mil

Engro 0.5 20 10

SUI 1 50 50 bought 1 mil SUI at 50

cash 25 + PTC sold 50 - Buy SUI 50 = 25

Total Assets after trading 135

End of Week 2 Portfolio Composition, It is also Beginning of week 3 portfolio

Prices changed between trading day and the last day of week, so MV of stocks were

Co Shares No mills Price Rs MV mil Rs

PTC 1 40 40 price fell

Engro 0.5 12 6 price fell

SUI 1 35 35 price fell

cash 25

Total 106

Balance Sheet at the end of Week2

TA 106

TL 0

OE 106
Rp end of week 2 = (OE end of week 2 - OE Beg of week 2) / OE Beg of week 2

Rp end of week 2 = (106 - 120)/120 = -11.67%

Note ROR of portfolio is = profit / your OE invested in the beg of week

Note pofit = OE end of week - OE beg of week , 106 - 120 = -14

Rp week 2 = Profit of week 2 / Beg OE week 2 = -14 / 120 = -11.67%

Note: DO NOT DO THE MISTAKE OF CALCULATING Rp USING MV OF TA IN THE PORTFOLIO

Now carry on in the same way for the 10 weeks, and submit weekly Rp of your portfolios with
calculation

like the one shown above. Do not for get each weekly report has 1%age point out of total 100 fot the
course

Instructions For Passive Portfolio

blindly select shares of 5 or 7 or 10 companies by placing your finger on stock price page of a
newspaper. Once bought , you won’t sell these shares during next 10 weeks, so it is a naively selected
and passively managed portfolio; you just blindly selected a few stocks , invested funds, and then for 10
weeks did not change composition of this portfolio. You have 100 million Rs as OE

but you may end up with some cash after investing in shares in lots of 50 shares. Assume you earn 10%
per year, that is

0.1/52 = 0.00192 or 0.192% per week interest by depositing this left over cash in the bank. You would
invest once in shares and won’t change those shares through out 10 weeks. So it is passively managed
portfolio. Every week prices of shares in your portfolio would change and initial 100 mil may become
102 mil end of week one, 97 mil end of week 2, and 107 mil end of week 3, and so on until 10th week.
You are required to calculate Rp (%age return) of portfolio every week as shown below

Rp for week 1 = ( End MV of portfolio - Beginning MV of portfolio) / Begin MV . Note as there are 0 TL
so TA are equal to OE

Do prepare balance sheet of portfolio at the beginning and end of each week.

Rp for any week is = profit / initial investment or begin OE, and profit = End OE - Beg OE

Hypothetical Example
 Beginning of Week one

Co No of Shares price in Rs MV

PIA 50,000 500 25,000,000

Engro 100,000 400 40,000,000

PTC 5,000 500 2,500,000

PSO 20,000 400 8,000,000

POL 15,000 700 10,500,000

Service 20,000 500 10,000,000

Value of shares 96,000,000

cash 4,000,000

MV of Portfolio 100,000,000

Balance Sheet Beginning of Week 1

TA = TL + OE

100,000,000 = 0 + 100,000,000

End of Week One

Co No of Shares price in Rs MV

PIA 50,000 450 22,500,000

Engro 100,000 420 42,000,000

PTC 5,000 650 ,250,000

PSO 20,000 200 4,000,000

POL 15,000 500 7,500,000

Service 20,000 500 10,000,000

Value of Shares 89,250,000

cash 7,680

MV of Portfolio 89,257,680
beg cash * 0.00192 = end cash as cash in bank is earning interest

Balance Sheet End of Week One

TA = TL + OE

93,257,680 0 93,257,680

Rp end of week 1 1= (93,257,680 - 100,000,000) / 100,000,000

Rp end of week 1 = -11%

End of Week 2

Co No of Shares price in Rs MV

PIA 50,000 250 12,500,000

Engro 100,000 700 70,000,000

PTC 5,000 900 4,500,000

PSO 20,000 600 12,000,000

POL 15,000 120 1,800,000

Service 20,000 400 8,000,000

Value of Shares 108,800,000

cash 7,695

MV of Portfolio 108,807,695

Balance Sheet End of Week 2

TA TL + OE

112,815,375 0 112,815,375

Rp= (112,815,375 - 93,257,680) / 93,257,680

Rp for week 2 = 22%

Keep on doing the same for 10 weeks, Cos or number of shares wont change in any week

only prices of those shares would change and result in new MV of portfolio end of each week.

Cash in the bank earns interest every week, it is also treated as one of the asset in your portfolio.

Instructions For The Passive Levered Portfolio

100 mil Rs I give as your OE, you buy blindly shares of a few cos, then take those shares to bank and
pledge almost 100 mil worth of shares to borrow 50 mil Rs from bank at 20% per year interest rate.
With this 50 mil buy more of the same shares that you have already bought. Note you are selecting
shares blindly without doing any analysis.

In this portfolio your OE is 100 million Rs (owner's equity). You have levered portfolio, but do not
change shares once bought , you keep those shares in your portfolio for 10 weeks.

Just see every week their prices would change resulting in new MV of shares in your portfolio.

Pay every week on 50 mil Rs bank loan interest = 50 mil * 0.2/52 = 0.1923 mil Rs interest. So beginning
of week one keep some cash in hand so you can pay weekly interest fo the next 10 weeks, which is
about 0.1923 *10 =1.923 mil Rs total for 10 weeks. So keep at least 2 mil cash in portfolio

For simplicity do not assume you are earning any interest on this cash kept in the bank. Every week
this cash amount would reduce as you will pay interest on 50 mil loan to the bank.

Each week , starting from beginning of week one, make balance sheet of portfolio. In beginning of week
one it would look like; TA = 150; TL 50; OE 100 . TA would include shares you bought and cash

End of week one balance sheet may look like: TA= 159, TL= 50, OE = 109

so Rp for week one =( OE ending - OE beginning) / OE beginning

TA of portfolio means shares at their current price on the last day of the respective week plus any cash
left after paying weekly

interest to bank on 50 mil loan , which as shown earlier would be 0.1923 mil Rs every week

Hypothetical example
Beginning of week One Portfolio

PIA 30 mil Rs

Engro 30

PTC 30

UBL 30

MCB 25

cash 5

MV of TA 150 mil Rs

Balance Sheet Beginning of week one

TA 150

TL 50

OE 100

End of Week one TA of Portfolio

PIA 32 mil Rs

Engro 25

PTC 40

UBL 30

MCB 28

cash 4.807

MV of TA 159.807 mil Rs

cash 5 mil * 0.2/52 = 0.1923 mil interest paid

cash at the end of week one = 5 - 0.1923 = 4.807 mil Rs

Balance Sheet at the end of Week one

TA 159.807

TL 50

OE 109.807
Rp end of week one = (OE end - OE Beg) / OE Beg

Rp end of week one = (109.807- 100)/100 = 9.87%

End of Week 2 TA of Portfolio

PIA 40 mil Rs

Engro 20

PTC 30

UBL 50

MCB 30

cash 4.615

MV of TA 174.615 mil rs

cash at the end of week 2 =cash in the beg of week - interest paud for the week = 4.807 mil Rs -
0.1923 mil Rs = 4.615 mil Rs

Balance Sheet at the end of Week2

TA 174.615

TL 50

OE 124.615

Rp end of week 2 = (OE end of week 2 - OE Beg of week 2) / OE Beg of week 2

Rp end of week 2 = (124.615 - 109.807)/109.807 = 13.48%

Note ROR of portfolio is = profit / your OE invested in the beg of week

Note profit = OE end of week - OE beg of week

Note: DO NOT DO THE MISTAKE OF CALCULATING Rp USING MV OF TA ( total assets) IN THE
PORTFOLIO

Now carry on in the same way for the 10 weeks, and submit weekly Rp of your portfolios with
calculation

like the one shown above. Do not forget each weekly report has 1%age point out of total 100 points of
the course

Instructions For The Index or Market Portfolio

100 mil Rs I give as your OE, you assume beginning of week 1 KSE-100 index is Price of a hypothetical
share, say KSE-100 index on that day is 43,000

Balance sheet on day 1 (beginning) of week 1 : TA =100, TL =0; OE 100

Suppose on the last day of week 1 KSE-100 index is 43,900

Rp for week 1 =( 43,900 - 43,000) / 43,000 = 0.0209 or 2.09%

Your 100 million grew by the end of week 1 by this %age, and became 100*(1 + 0.0209) =102.09 mil Rs

Balance sheet end of week 1: TA = 102.09; TL = 0; OE = 102.09

You can double check Rp for week 1 as :( OE ending - OE beginning) / OE Beginning = (102.09 -100) /
100 = 0.0209 or 2.09 %

suppose End of week 2, KSE-100 Index is at 45,000.

Rp for week 2 = (45,000 - 43,900) / 43,900 = 0.0250 or 2.5%

Your wealth, OE end of Week 2 = OE end week 1*(1 + Rp week of week 2). 102.09(1 +0. 0205) = 104.64
mil Rs

Balance sheet end of week2 : TA = 104.64 mil Rs; TL = 0; OE = 104.64 Mil Rs

You can double check Rp for week 2 as :

( OE ending - OE beginning) / OE beginning = (104.64 - 102.09) / 102.09 = 0.025 or 2.5%

Suppose End of week 3 KSE -100 index is at 41,000. Rp for week 3 = (41,000 - 45,000) / 45,000 = -0.089
or -8.9%
Your wealth, OE end of Week 3 = OE end week 2*(1 + Rp week of week 3). 104.64(1 + - 0.089) = 95.32
mil Rs

Balance Sheet end of week 3: TA = 95.32; TL = 0; OE = 95.32

You can double check Rp for week 3 as:

(OE ending - OE begin) / OE begin = (95.32 - 104.64) /104.64 = -0.089 or -8.9%

And so on , you would calculate Rp for 10 weeks and also show End OE at the end of each week.

Please do not forget to include balance sheet of each of your 4

portfolio at the beginning of that week and also at the end of that
week