The Effect of Market Factors on Stock Yields

The weighted average factors were calculated from the number of shares held in each company in the portfolio. The total number of stocks held in the portfolio was six hundred and sixty-four. The factors were calculated by getting the quotient between the value of shares held and the total number in the portfolio per company. The weighted average yields are a product of the factors and the estimated current yields. The estimated current yields were calculated by getting the product of the number of shares held for every company and the market price (Brooks, 2015).

Market-based yield against cost-based yield

A yield that is based on the market value is a best estimate compared to a yield that is based on cost. The market has several factors like inflation, interest rates and forces of demand and supply (Becker et al, 2015). A yield based on the market is affected by all these factors and hence is a true representation of the stock value and its returns. However, a yield based on cost is unreliable as it is an underestimation since market factors are not incorporated in the calculation (Liu et al, 2018).

Non-quantitative observables

The highest yield observed is 5.75%, on T stock while the lowest return is 2.71% from PEP stock. The weighted average is at 4.36%, which is a good rate considering the amount invested in the portfolio. The choice on the type and number of stocks held might have been based on the price of the security. The higher the market price, the lesser the number of securities bought (Strahilevitz, 2017). The lower the price of stock, the higher the number of stock purchased. The least expensive stock, T stock, had the highest estimated yield while the most expensive stock, CVX, had a yield that is closer to the highest recorded yield. This observation might be as a result of the high risk associated with investment into CVX stocks and high marketability of T stocks.

References

Becker, B., & Ivashina, V. (2015). Reaching for yield in the bond market. The Journal of Finance, 70(5), 1863-1902.

Brooks, R. (2015). Financial management: core concepts. Pearson.

Liu, W., & Atuahene-Gima, K. (2018). Enhancing product innovation performance in a dysfunctional competitive environment: The roles of competitive strategies and market-based assets. Industrial Marketing Management.

Strahilevitz, M. A. (2017). A Closer Look at the Causes and Consequences of Frequent Stock Trading.