CHAPTER IV DATA COLLECTION AND ANALYSIS

Transcription

1 CHAPTER IV DATA COLLECTION AND ANALYSIS 4.1 Short brief of research object Bakrie Life Insurance is one of the companies from the Bakrie business group that involved in the insurance service. This company was begun by taking over Centris Life at the end of Vision: Mission: Became the foremost company of the financial service that gave maximal added value to stakeholder. Became the life insurance company that gave satisfaction in the fulfillment of the life insurance service for the community through heterogeneous products, the distribution that was easy to be covered, as well as to be supported with professional human resources. Based on Table 4.1, Bakrie Life Insurance assets always increase since 2001 through to quarter 1 (first) 2006 with total value of assets for about Rp. 204 billion. The Bakrie Life Insurance performance increasingly improved and it was indicated by being chosen by Info Bank magazine during 2003, 2004, 2005 as very good insurance. Moreover during 2004 and 2005 Bakrie Life Insurance was chosen as the best insurance from the investor's magazine. In the next 5 years Bakrie Life Insurance have expectation to become 10 best local insurance company which will be followed by initial public offering (IPO) in

2 Financial highlight Table 4.1Bakire Life Insurance s Financial Statement (Source: Company profile) Total Revenue 69,468 87, , , ,082 Net premium Income 66,965 81, , , ,002 Investment income 1,642 5,394 17,820 27,270 33,980 Expenses 67,540 86, , , ,747 Increase in reserve 1,623 14,831 30,742 21,389 36,735 Net claims & benefits 42,350 25,271 74,580 78, ,750 Net claims & benefits 42,350 25,271 74,580 78, ,750 Acquisition cost 10,043 21,903 29,472 21,085 15,734 Operating expenses 13,321 22,609 23,296 21,991 21,531 Net profit 1,277 2,306 3,301 5,701 9,158 Total Assets 39,081 62, , , ,598 Cash & investments 24,870 42,096 73, , ,067 Reserve 20,368 37,075 64,895 89, ,154 Equity & sub loan 12,916 16,896 36,174 41,911 51,070 Ratios Net profit/revenue 1.8% 2.6% 2% 3.8% 4.8% Net profit/net premium 1.9% 2.8% 2.3% 4.7% 6.0% Investment/total assets 64% 67% 70% 75% 84% Investment/Reserve 122% 114% 114% 119% 126% Average investment yield 8.2% 16.1% 30.8% 30.3% 26% Average return on Equity 10.4% 15.5% 12.4% 14.6% 19.7% Risk Based Capital 164% 76% 120% 128% 134% 4.2 Revenue structure of Bakrie Life Insurance Generally in life insurance business premium give big enough contribution to the company s revenue. At Bakrie Life Insurance there are some insurance products which offered to group (other company) and also individual. The products are: a) Dwiguna b) Kesehatan c) Seumur hidup d) Jangka warsa e) Kecelakaan f) Weiver Premium 24

3 Table 4.2 Revenue of insurance premium year 2004 (Source: Annual report 2004) 2004 Jangka warsa Rp. 61,492,059,269 Dwiguna Rp. 60,714,387,944 Kesehatan Rp. 21,629,381,217 Seumur hidup Rp. 2,490,319,448 Kecelakaan Rp Weifer Rp. 37,794,874 Total Rp. 147,091,358,425 Table 4.3 Revenue of insurance premium year 2005 and 2006 (Source: Annual report 2005 & 2006) Dwiguna Rp. 98,058,068,814 Rp. 204,751,362,507 Kesehatan Rp. 3,419,643,954 Rp. 13,453,447,275 Seumur hidup Rp. 2,587,908,834 Rp. 2,320,950,697 Jangka warsa Rp. 50,258,210,538 Rp. 2,072,600,548 Kecelakaan Rp. 391,502,155 Rp. 321,809,248 Weifer Rp. 36,681,157 Rp. 41,016,434 Total Rp. 154,752,015,452 Rp. 222,961,186,709 Some of the fund above which later will be used for investment by Bakrie life Insurance. In managing their financial, Bakrie Life Insurance invest in various type of investment either real investment or unreal investment. For the real investment Bakrie Life Insurance invest in property. While for unreal investment Bakrie Life invest in form of share, obligation, time deposit, mortgage loan, and the polis loan. 4.3 Investment of Bakrie Life Insurance Bakrie Life Insurance investment report year 2004 period Table 4.4 Bakrie life insurance investment report in stocks year 2004 period (Source: Annual report 2004) Stock Shares total Total value % from total (in million) investment in stock TLKM 1,780,000 Rp 8, % BBCA 1,805,000 Rp 5, % ASII 830,000 Rp 7, % ISAT 1,500,000 Rp 8, % GGRM 446,000 Rp 6, % SMGR 250,000 Rp 4, % HMSP 930,000 Rp 6, % UNVR 1,295,000 Rp 4, % BUMI 3,300,000 Rp 2, % ANTM 2,015,000 Rp 3, % Total 14,151,000 Rp. 57, % 25

4 Table 4.5 Bakrie life insurance report in bonds year 2004 period (Source: Annual report 2004) Bond % from total Coupon Nominal value investment in rate (in million) bond Astra Agro Lestari I, Tahun % Rp 3, % HM Sampoerna II, Tahun % Rp 3, % Indofood Sukses Makmur I, Tahun % Rp 3, % Indosat I Seri A, Tahun % Rp 3, % Jasa Marga IX Seri N1, Tahun % Rp 3, % Perum Pegadaian VI 1.46% Rp 2, % Perum Pegadaian X Seri A, Tahun % Rp 1, % Pupuk Kaltim I Seri A1, Tahun % Rp 2, % Telkom Indonesia 1.42% Rp 3, % Matahari Putra Prima % Rp % Total Rp. 25,100 Bakrie Life Insurance investment report year 2005 period Table 4.6 Bakrie life insurance investment report in stocks year 2005 period (Source: Annual report 2005) Stock Shares total % from total Total value investment in (in million) stock ANTM 3,240,000 Rp 11, % BUMI 10,475,000 Rp 7, % ASII 894,000 Rp 9, % BNBR 38,597,000 Rp 4, % GGRM 925,000 Rp 10, % KLBF 10,000,000 Rp 9, % INKP 5,000,000 Rp 5, % RALS 7,550,000 Rp 6, % INDF 7,000,000 Rp 6, % INTP 950,000 Rp 3, % ISAT 1,715,000 Rp 9, % MEDC 500,000 Rp 1, % TLKM 1,780,000 Rp 10, % Total Rp 96,

5 Table 4.7 Bakrie life insurance investment report in bonds year 2005 period (Source: Annual report 2005) Bond Coupon Nominal value % from total investment rate (in million) in bond Astra Graphia I, Tahun % Rp 3, % HM Sampoerna II, Tahun % Rp 3, % Indofood Sukses Makmur II, Tahun % Rp 2, % Indosat I Seri A, Tahun % Rp 3, % Jasa Marga IX Seri N1, Tahun % Rp 3, % Jasa Marga XI Seri P, Tahun % Rp 2, % Matahari Putra Prima % Rp 3, % Pupuk Kaltim I Seri A1, Tahun % Rp 2, % Telkom I, Tahun % Rp 3, % Total Rp 26,650 Bakrie Life Insurance Investment report year 2006 period Table 4.8 Bakrie life insurance investment report in stocks year 2006 period (Source: Annual report 2006) % from total Total value Stock Shares investment in (in million) stock ADHI 15,000,000 Rp 12, % ASII 1,400,000 Rp 21, % BNBR 117,217,500 Rp 18, % ELTY 95,364,000 Rp 18, % BUMI 19,779,000 Rp 17, % GGRM 1,175,000 Rp 11, % INKP 14,000,000 Rp 13, % INDF 8,000,000 Rp 10, % ISAT 1,228,000 Rp 8, % KLBF 8,250,000 Rp 9, % RALS 11,500,000 Rp 10, % PTBA 3,250,000 Rp 11, % TLKM 2,000,000 Rp 20, % UNTR 1,500,000 Rp 9, % Total Rp 194,

6 Table 4.9 Bakrie life insurance investment report in bonds year 2006 period (Source: Annual report 2006) Bond Coupon Nominal value % from total rate (in million) investment in bond Astra Graphia I, Tahun % Rp 3, % HM Sampoerna II, Tahun % Rp 3, % Indofood Sukses Makmur II, Tahun % Rp 2, % Indosat II Tahun 2002, Seri A 1.42% Rp 3, % Jasa Marga IX Seri N1, Tahun % Rp 3, % Jasa Marga XI Seri P, Tahun % Rp 2, % Matahari Putra Prima 1, % Rp 3, % Pupuk Kaltim I Seri A1, Tahun % Rp 2, % Telkom Indonesia I, Tahun % Rp 3, % Total Rp 27,700 In doing investment, Bakrie Life Insurance expects return from its investment activity. At this final project the discussion will be focused in analyzing expected return and risk in stock and bond investment. The following data is about expected return and risk from each stock and bond investment of Bakrie Life Insurance from year 2004 until 2006 by doing calculation in: Calculate expected return and risk of stock investment based on historical data of that stock. Calculate expected return and risk of bond investment based on coupon rate at the bond. 28

7 4.4 Data analysis By using equation 2.2 and equation 2.4 so we can calculate expected return and risk for each investment. We should calculate expected return and risk from each stock to analyze whether each stock is good choice or not for investment activity. These are results of the calculation: Stock Number Table 4.10 Data of expected return and risk from stocks investment period 2004 % from total Stock Value Expected Shares investment name (in million) Return in stock 1 TLKM 1,780,000 Rp 8, % 3.92% 10.84% 2 BBCA 1,805,000 Rp 5, % 2.85% 13.55% 3 ASII 830,000 Rp 7, % 4.09% 17.77% 4 ISAT 1,500,000 Rp 8, % 2.24% 13.08% 5 GGRM 446,000 Rp 6, % 0.69% 10.99% 6 SMGR 250,000 Rp 4, % 1.81% 14.38% 7 HMSP 930,000 Rp 6, % -0.42% 17.51% 8 UNVR 1,295,000 Rp 4, % 0.34% 17.26% 9 BUMI 3,300,000 Rp 2, % 10.16% 48.01% 10 ANTM 2,015,000 Rp 3, % 3.70% 17.72% Risk Total Rp57, In 2004 Bakrie Life Insurance did investment in 10 (ten) stocks. Each of stock s return will have correlation with return from other stocks. If the correlation is positive, it means that if the return of the first stock going increase then the other stock s return which have positive correlation will also tend to increase and vice versa. In order to cover each other, it is better if the correlation with negative and positive value have the same amount. 29

8 Based on Table 4.11 there are only 4 (four) negative correlations from total 45 (forty five) correlation in that portfolio. So the condition in Bakrie Life Insurance stocks portfolio is risky, because if the return from one of their stocks going increase, then almost all of others stocks will tend to increase and vice versa. It will be better if Bakrie Life Insurance balances its stock s correlation so each stock can cover other stock which its value of return become decrease. Table 4.11 Correlation matrix between each stock in 2004 TLKM BBCA ASII ISAT GGRM SMGR HMSP UNVR BUMI ANTM TLKM BBCA ASII ISAT GGRM SMGR HMSP UNVR BUMI 0.42 ANTM 30

9 In year 2004 Bakrie Life Insurance invest in 10 (ten) stocks. We can see that there are two stocks which are not in ordinary condition. The first is BUMI. In figure 4.1 BUMI has the highest expected return than another but BUMI also has the highest risk than another stock. The second is HMSP. In figure 4.1 HMSP has the lowest expected return than another and reach minus value for their expected return. It means that this stock was not good enough to become investment option for Bakrie Life Insurance. There are other stocks that expected to give higher return with the almost same level of risk. If we analyze more detail there are only three stocks which can be categorized as good choice in that portfolio. There are TLKM (PT. Telkom Indonesia), ASII (PT. Astra International), and BUMI (PT. Bumi Rsources). Because they offer lower risk with the higher return than the other stocks offered. This figure below is about the expected return and risk of stock investment from Bakrie Life Insurance period 2004 refer to table Figure 4.1 Expected return and risk of stock investment in

10 Based on figure 4.2, the green point is the current position of the expected return and risk from Bakrie Life Insurance for stock portfolio in The green point is calculated by using Eq. 2.5 and Eq Actually the expected return and risk of their stock portfolio were not optimal. Based on minimum variance frontier method actually Bakrie Life Insurance can maximize their expected return with the same level of risk or minimize risk with the same level of expected return by using Eq. 2.8 and Eq So in order to optimizing the expected return and risk of stock portfolio based on minimum variance frontier, Bakrie Life Insurance should change the proportion of their each stock. Minimize Risk Maximize Return Current Position Figure 4.2 Expected return and risk of stock portfolio in 2004 based on variance frontier 32

11 After doing calculation by using Eq. 2.8 and Eq. 2.9 then to maximize the expected return or minimize the risk of stock portfolio, Bakrie Life Insurance should change its proportion in each stock by the following data: Table 4.12 Proportion of stocks to optimize expected return and risk in year Stock # Current Position Min. Risk Max. Return 1 TLKM BBCA ASII ISAT GGRM SMGR HMSP UNVR BUMI ANTM Total Shares Expected Return Risks Beside did investment in stocks, Bakrie Life Insurance also did investment in bond. Based on Eq. 2.5 the expected return of bond portfolio is 1.42%. Based on figure 4.3 Indosat I Seri A, Tahun 2001 has the highest expected return. Actually for bond the level of risk is very small, so it can be assumed zero risk (risk = 0%). Based on that assumption, bond of Indofood Sukses Makmur I, Tahun 2000 and Pupuk Kaltim I Seri A1, Tahun 2002 weren t good enough. Because with the almost same level of risk there are other options for bond that expected to give higher return. 33

12 Table 4.13 Data of expected return and risk from bonds investment period 2004 Bond name Value (in million) % from total investment in bond Expected Return Risk Astra Agro Lestari I, Tahun 2000 Rp 3, % 1.47% 0% HM Sampoerna II, Tahun 2000 Rp 3, % 1.46% 0% Indofood Sukses Makmur I, Tahun 2000 Rp 3, % 1.12% 0% Indosat I Seri A, Tahun 2001 Rp 3, % 1.54% 0% Jasa Marga IX Seri N1, Tahun 2002 Rp 3, % 1.54% 0% Perum Pegadaian VI Rp 2, % 1.46% 0% Perum Pegadaian X Seri A, Tahun 2003 Rp 1, % 1.08% 0% Pupuk Kaltim I Seri A1, Tahun 2002 Rp 2, % 1.50% 0% Telkom Indonesia Rp 3, % 1.42% 0% Matahari Putra Prima 1 Rp % 1.49% 0% Total Rp 25,100 This is the figure about the expected return and risk of bond investment from Bakrie Life Insurance period 2004 refer to table 4.13 Figure 4.3 Expected return and risk of bond investment in

13 In 2005 Bakrie Life Insurance did investment in 13 (thirteen) stocks. These are the expected return and risk of each stocks based on Eq. 2.2 and Eq. 2.4: Stock Number Table 4.14 Data of expected return and risk from stocks investment period 2005 % from total Stock Value Expected Shares investment name (in million) Return in stock 1 ANTM 3,240,000 Rp11, % 3.79% 18.03% 2 BUMI 10,475,000 Rp 7, % 12.31% 39.94% 3 ASII 894,000 Rp 9, % 5.67% 15.62% 4 BNBR 38,597,000 Rp 4, % 3.66% 30.86% 5 GGRM 925,000 Rp10, % 1.75% 10.38% 6 KLBF 10,000,000 Rp 9, % 4.28% 17.95% 7 INKP 5,000,000 Rp 5, % 4.95% 19.63% 8 RALS 7,550,000 Rp 6, % -0.26% 19.58% 9 INDF 7,000,000 Rp 6, % 1.22% 11.39% 10 INTP 950,000 Rp 3, % 5.47% 16.98% 11 ISAT 1,715,000 Rp 9, % 1.42% 17.00% 12 MEDC 500,000 Rp 1, % 1.24% 8.50% 13 TLKM 1,780,000 Rp10, % 1.99% 12.1% Total Rp96, Risk 35

14 In year 2005 Bakrie Life Insurance stock portfolio have almost same condition with the year From total of 78 correlations there is only one correlation which had negative value. But in 2005 I think the condition become riskier than year 2004, because the amount of negative correlation going decrease. It means that the characteristic of stock movement become homogenous. These are the correlation matrix between each stock in 2005: Table 4.15 Correlation matrix between each stock in 2005 ANTM BUMI ASII BNBR GGRM KLBF INKP RALS INDF INTP ISAT MEDC TLKM ANTM BUMI ASII BNBR GGRM KLBF INKP RALS INDF INTP ISAT MEDC 0.17 TLKM 36

15 In figure 4.4, BUMI become the stock which expected to give the highest return even though BUMI also have the highest risk. The other stocks that already chosen are likely to balance the risk for its stock portfolio, but there is one stock which reach minus value for its expected return. The name of the stock is RALS and this stock wasn t good enough to become investment option for Bakrie Life Insurance, because actually there are other options which offer higher expected return with lower risk than that stock. If we analyze more detail there are 5 (five) stocks that can be categorized as good option to invest. There are MEDC (PT. Medco Energy), GGRM (PT. Gudang Garam), TLKM (PT. Telkom Indonesia), ASII (PT. Astra International), and BUMI (PT. Bumi Resources), because they offer higher expected return than other stocks which have same or almost same risk with them. This is the figure about the expected return and risk of stock investment from Bakrie Life Insurance period 2005 refer to table Figure 4.4 Expected return and risk of stock investment in

16 Based on figure 4.5, the green point is the current position of the expected return and risk from Bakrie Life Insurance for stock portfolio in Like the previous year (2004) the expected return and risk of its stock portfolio wasn t optimal. Based on minimum variance frontier method actually Bakrie Life Insurance can maximize its expected return with the same level of risk or minimize risk with the same level of expected return by changing the proportion of its investment in each stock. Minimize Risk Maximize Return Current Position Figure 4.5 Expected return and risk of stock portfolio in 2005 based on variance frontier 38

17 These are the proportion of stock to optimize expected return and risk from stock portfolio in 2005 Table 4.16 Proportion of stocks to optimize the expected return and risk in year Stock # Current Posistion Min. Risk Max. Return 1 ANTM BUMI ASII BNBR GGRM KLBF INKP RALS INDF INTP ISAT MEDC TLKM Total Shares Expected Return Risks In 2005 Bakrie Life Insurance also did investment in bonds. In 2005 Bakrie Life Insurance invest in 9 (nine) bonds. These are the expected return and risk from each bond by using Eq. 2.2 and Eq Table 4.17 Data of expected return and risk from bonds investment period 2005 Bond name % from total Value Expected investment in (in million) Return Bond Risk Astra Graphia I, Tahun 2003 Rp 3, % 1.11% 0% HM Sampoerna II, Tahun 2000 Rp 3, % 1.46% 0% Indofood Sukses Makmur II, Tahun 2003 Rp 2, % 1.12% 0% Indosat I Seri A, Tahun 2001 Rp 3, % 1.54% 0% Jasa Marga IX Seri N1, Tahun 2002 Rp 3, % 1.54% 0% Jasa Marga XI Seri P, Tahun 2003 Rp 2, % 1.02% 0% Matahari Putra Prima 1 Rp 3, % 1.49% 0% Pupuk Kaltim I Seri A1, Tahun 2002 Rp 2, % 1.50% 0% Telkom I, Tahun 2002 Rp 3, % 1.42% 0% Total Rp 26,650 39

18 This is the figure about the expected return and risk of bond investment from Bakrie Life Insurance period Figure 4.6 Expected return and risk of bond investment in 2005 Based on Eq. 2.5, the expected return of bond portfolio is 1.37%. Based on the figure 4.6, bond of Astra Graphia I tahun 2003, Indofood Sukses Makmur II tahun 2003 and Jasa Marga XI Seri P Tahun 2003 weren t good choice for investment. Because actually there are other choices of bond that offer higher expected return with same risk. Beside that the gap of expected return between that three bonds with other bonds are big enough. So by choosing another bond which offer higher expected return with the same level of risk at least it will increase the expected return of their bond portfolio. 40

19 In year 2006 Bakrie Life Insurance did investment in 13 (thirteen) stocks. These are the expected return and risk of each stock based on Eq. 2.1 and Eq. 2.3 Stock Number Table 4.18 Data of expected return and risk from stocks investment period 2006 Stock name Shares Value (in million) % from total investment in stock Expected Return 1 ASII 1,400,000 Rp 21, % 3.92% 10.65% 2 BNBR 117,217,500 Rp 18, % 13.90% 78.47% 3 ELTY 95,364,000 Rp 18, % 14.89% 55.62% 4 BUMI 19,779,000 Rp 17, % 14.95% 38.63% 5 GGRM 1,175,000 Rp 11, % 1.39% 9.72% 6 INKP 14,000,000 Rp 13, % 7.09% 18.44% 7 INDF 8,000,000 Rp 10, % 1.75% 11.02% 8 ISAT 1,228,000 Rp 8, % 1.28% 17.42% 9 KLBF 8,250,000 Rp 9, % 5.12% 16.56% 10 RALS 11,500,000 Rp 10, % -0.17% 18.63% 11 PTBA 3,250,000 Rp 11, % 3.76% 12.74% 12 TLKM 2,000,000 Rp 20, % 1.96% 11.50% 13 UNTR 1,500,000 Rp 9, % 8.32% 15.86% Total Rp194, In year 2006 Bakrie Life Insurance s correlations matrix of stock investment had better condition than the previous year even though it didn t well enough to cover the risk. From total 78 correlation matrix, there are only 7 correlations that had minus value. Risk 41

20 These are the correlations matrix of each stock in 2006: 4.19 Correlation matrix between each stock in 2006 ASII BNBR ELTY BUMI GGRM INKP INDF ISAT KLBF RALS PTBA TLKM UNTR ASII BNBR ELTY BUMI GGRM INKP INDF ISAT KLBF RALS PTBA TLKM 0.44 UNTR 42

21 Based on figure 4.7 we can see that in 2006 Bakrie Life Insurance invested in 14 (fourteen) stocks. BUMI (Bumi Resources) become the stock that offer the highest expected return. On the other hand RALS (Ramayana Lestari) become the stock that offer the lowest expected return and reach the minus value. So we can conclude that RALS wasn t good enough to become one of the options for investment. Because actually there were other stocks which offer higher expected return with the lower risk than RALS had. If we analyze more deep there are 4 (four) stocks that can be categorized as good option for investment. There are GGRM (PT. Gudang Garam), ASII (PT. Astra International), UNTR (PT. United Tractor), and BUMI (PT. Bumi Resources). Because of they offer higher expected return than other stocks which had almost same level of risk. This is the figure about the expected return and risk of stock investment from Bakrie Life Insurance period Figure 4.7 Expected return and risk of stock investment in

22 Minimizing Risk Portfolio Maximizing Return Portfolio Current Portfolio Figure 4.8 Expected return and risk of stock portfolio in 2006 based on variance frontier Based on figure 4.8 the green point is the current position of the expected return and risk from Bakrie Life Insurance stock portfolio in Like the previous year (2005) the expected return and risk of its stock portfolio wasn t optimal. Based on minimum variance frontier method actually Bakrie Life Insurance can maximize its expected return with the same level of risk or minimize risk with the same level of expected return by changing the proportion of its investment in each stock. These are the proportion of stocks to optimize the expected return and risk from stock portfolio in Table 4.20 Proportion of stocks to optimize the expected return and risk in year Stock # Current Posistion Min. Risk Max. Return 1 ASII BNBR ELTY BUMI GGRM INKP INDF ISAT KLBF RALS PTBA TLKM UNTR Total Shares Expected Return Risks

23 In year 2006 Bakrie Life Insurance also did investment in bonds. Based on Eq. 2.5 the expected return of bond portfolio is 1.35%.. Table 4.21 Data expected return and risk from bond investment period 2006 Bond name % from total Value Expected investment in (in million) Return Bond Risk Astra Graphia I, Tahun 2003 Rp 3, % 1.11% 0% HM Sampoerna II, Tahun 2000 Rp 3, % 1.46% 0% Indofood Sukses Makmur II, Tahun 2003 Rp 2, % 1.13% 0% Indosat II Tahun 2002, Seri A Rp 3, % 1.42% 0% Jasa Marga IX Seri N1, Tahun 2002 Rp 3, % 1.54% 0% Jasa Marga XI Seri P, Tahun 2003 Rp 2, % 1.03% 0% Matahari Putra Prima 1, 2002 Rp 3, % 1.49% 0% Pupuk Kaltim I Seri A1, Tahun 2002 Rp 2, % 1.50% 0% Telkom Indonesia I, Tahun 2002 Rp 3, % 1.42% 0% Total Rp 27,700 Based on the figure 4.9 bond of Astra Graphia I Tahun 2003, Indofood Sukses Makmur II Tahun 2003 and Jasa Marga XI Seri P Tahun 2003 weren t good choice for investment. Because actually there are other choices of bond that offer higher expected return with same risk. Beside that the gap of expected return between that three bonds with the other bonds are big enough. So by choosing the other bonds which offer higher expected return with the same risk at least it will increase the expected return of its bond portfolio 45

24 This is the figure about the expected return and risk of bond investment of Bakrie Life Insurance period 2006 Figure 4.9 Expected return and risk of bond investment in 2006 After identifying expected return and risk from each investment by using this Eq. 2.2 and Eq. 2.4 so we can calculate the expected return and risk of total portfolio. These are data about the expected return and risk from total portfolio for each year since 2004 until Table 4.22 Expected return and risk from total portfolio period Years E(R) Risk

25 This is the graph about the expected return and risk of portfolio investment from Bakrie Life Insurance period 2004, 2005, 2006: Figure 4.10 Expected return and risk of total portfolio period Based on the figure 4.10 we can see that the expected return of total portfolio always increased since year 2004 until From 2005 until 2006 the expected return and the risk of total portfolio increased significantly. It caused by Bakrie Life Insurance increased its investment in stocks. As we know from the previous data that the investment in stock offering higher expected return and risk than investment in bond. Even though Bakrie Life Insurance since 2004 until 2006 always increased its investment in bond but the proportion of funds that allocated to bond wasn t equal with the proportion of funds that allocated to stock. That s why the expected return and risk of total portfolio increased significantly because the expected return and risk of bond can t balance the expected return and risk of stock. Based on figure 4.2, figure 4.5, and figure 4.8 we can maximize the expected return of stock portfolio with the same level of risk or minimize the risk of stock portfolio with the same level of expected return. The 47

26 way to maximize expected return or minimize risk of stock portfolio is by changing the proportion of investment in each stock. These are the comparison of changing the proportion of investment from each stock. Table 4.23 Comparison of Expected return between current condition with the scheme from minimum variance frontier Year Actual condition Min. Risk Max. Return ,36 0,41 0, ,37 2,00 0, ,78 4,13 2,53 4,5 4 3,5 3 2,5 2 1,5 Actual condition Same return Same risk 1 0, Figure 4.11 Comparison of expected return between actual condition, same return and same risk since 2004 until 2006 Based on figure 4.11 the return of actual condition still became the highest return if compared to others condition. But it didn t mean that the concept of variance frontier was wrong. Because we didn t have strong evidence to state concept of variance frontier was wrong. The sample of data which used in this analysis wasn t enough to be analyzed using variance frontier method. 48