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Sunday, October 30, 2011

The Constant Issues, Universal Laws and Boundaries Conditions in Physics Theory


How can an Industrial Revolution be raised?
During the period of several centuries ago, the Human discovered some of the constant natural numbers such as Pi, e, G and so on that each one of them had the influence on development of the world. In fact, the constant numbers were the origin of the Universal laws as the constant points for instance; the Newton’s law of universal gravitation was inferred from “G” (Universal Constant). Therefore, the answer to above question is to find out the constant numbers in which they give us the vita, the life, the energy and Dynamic. For example, please consider the sun and other stars which are the constant points and give us the dynamic. Another example is about someone who stays in the job or the location for several years (the constant) and gain the great credit to launch new business and dynamic. In the financial analysis, if we find any accurate constant data other than the abruption data as our assumption, we can expand a new dynamical idea by using of the cause – effect system and measure the impact of the constant data by a Balance Scorecard framework. These are the constant points.
Now, the question is about the total impact of a constant number. It depends on the period of the sustainability and the stability time for constant data. For instance, if the data or number is the constant only for several years, definitely the total influence of data on the systems dynamic is limited. Of course, the debate can be very challenging because we assume that all data or numbers are the stable on the period of limited time. Actually, there is not any constant natural numbers but we have the boundaries for them such as “e” and diagram of y = 1 / x
The process of dynamic for a constant natural number or point can be started by a wave then we will have high frequency wave and after a resonance, probably it will go toward a very, very high frequency wave and finally we will not have any wave but it is a perpendicular line on the time axis just like to a spark. This area is the same boundaries because the properties of the points on the line are variable.
It means if we discover a constant natural number or point, we can generate a dynamic system or we can say the behind of any dynamic system, we have the constant number or point. A constant natural number or point can be a new idea or a new strategy in which the engineers or strategists can use them to produce a new dynamic system.
According to above mentioned, I stated two statuses: 1) The starting point by using of the constant number 2) The ending line (reach to boundaries)

Third status is very important and it is to move on the boundaries. Even though the movement on the boundaries is very risky and dangerous, it can be gained to the change into a new system in which we have again a starting point and the huge new opportunities.
Let me bring you three examples as follows:
-Please consider you are driving on highway. How can you go on speed line? Firstly you should reach on the boundary of the speed line then you should move on the boundary finally you will enter on speed line (new system)
-In the climate change, firstly the clouds are moving toward the boundary then we will have a spark because of the cloud’s movement on the boundary finally we will have a climate change or new climatology system (rainy weather).
-In puzzle game, assume you have several choices (locations) for a puzzle. Please close your eyes and go on the boundary of the puzzle by your finger then move on the boundary. Finally you will discover which location is the matched to your puzzle.
In the result, let us review again all three statuses as follows:
1) The starting point by using of the constant number: The good example is Newton’s laws of Motion. In this case, we can see a new idea or the constant point had been generated by cross –section of Art (Leonardo da Vinci 1452-1519), Philosophy (Newton 1642–1727) in which the case had been changed to the most important Universal law in the world.
2) The ending line (reach to boundaries) or reaching to the critical point: The good example is the relative theory by Albert Einstein in which the base of this theory is to assume the boundary for the light’s velocity (V = c). In this case, we cannot still move on the boundaries equal to the light’s velocity. Therefore, we are limited the applications and gains only by using of the boundaries conditions because we do not still know all real dimensions on this space. It is why we have so many models of quantum mechanics in the world. Sometimes we have to find new or free boundaries and utilize from the Scenario analysis and Simulation method to solve the problem. For instance, in the Steam Generators (Boilers), we can only design a boundary for pressure and temperature during the period of the time by using of Simulation method. Have you ever seen a Boiler with pressure capacity 20,000 Bar?
 3) The movement on the boundaries: ……………
Perhaps, the best way is to generate new constant number and to obtain the applications of it in the real life. It means to return back to Status (1).
I am also working on a new constant natural number that I name it as "The power of the time". It is clear, if I find out any application for this constant number, I will share it here.  

Sunday, October 16, 2011

Property Valuation in Residential Real Estate Market

Referring to my previous article posted on below link:
http://emfps.blogspot.com/2011_09_04_archive.html
In this article, I am willing to expand this method for the property valuation in Residential Real Estate market.
Of course, by using of this method, we will able to analyze the all valuations such as Bonds, Stocks and so on. 
Now, let me return back to my spreadsheet of excel again and write step by step the method of the property’s valuation.
-On Cells A17 – A23, replace below items:
Ø  On cell A17: Current Price of Property (P0)
Ø  On cell A18: Monthly Rent (Rm)
Ø  On cell A19: Number of months to pay the rent
Ø  On cell A20: New price of property (Pn)
Ø  On cell A21: PV of monthly rent
Ø  On cell A22: PV of new price after period of the time “t”
Ø  On cell A23: Property value
Ø  Between Cell A17 and A18 insert new cell which is Rm / P0
Ø  On cell A16 write “Required Return”
Now, to find the required return, we should use from try and error method just like to my previous article in which Current price (cellA17) will be equal to Property value (cell A23).
Example:
Assume below data are available:
-P0 = $80,000
-Rm = $500
- Number of months to pay the rent = 12 months
-Rm /P0 = 0.5%
-Pn = $100,000 (The anticipation of new price in accordance with research on historical Rm / P0)
By using of a try and error on required return, we can find where Current price ($800,000) is equal to Property value ($800,000.20), the required return is equal to 2.443 % (monthly) and equal to 29.32% annually.
Note:

“When the required return is greater than the Rm / P0, Current price (Value)
will be less than new price (Pn). In this case, the value is said to sell at a
discount, which will equal (Pn -P0).



When the required return falls below Rm / P0, the current price (value)
will be greater than new price (Pn). In this situation, the current price (Value)
said to sell at a premium, which will equal (P0 - Pn).”

To take a better analysis, we can apply the tables of sensitivity analysis as follows:

-The table of Pn – Rm: where independent variables are new price (Pn)
 and monthly rent (Rm) and so dependent variable (the result) is Current
price (Property value)
-The table of the required return – Rm: where independent variables
are the required return and monthly rent and so dependent variable
 (the result) is Current price (Property value)
-The table of Rm / P0 – Rm: where independent variables are Rm / P0
 and monthly rent and so dependent variable (the result) is Current
 price (Property value)
-The table of the required return – Pn: where independent variables
 are the required return and new price (Pn) and so dependent variable
 (the result) is Current price (Property value)



 

Note:  “All spreadsheets and calculation notes are available.
The people, who are interested in having my spreadsheets
of this method as a template for further practice,
do not hesitate to ask me by sending an email to:
 soleimani_gh@hotmail.com or call me on my cellphone:
 +989109250225.
 Please be informed these spreadsheets are not free of charge.”



 

How can we anticipate the new price of the property?

Definitely the answer to this question is not easy only by
 using of above method for instance there are the economic
 indicators such as currency rate, inflation, barrier to entry of
 investors and so on that we should combine with our analysis.

Therefore, at the first, we should conduct the new research on
 PEST analysis then we should find all outcomes which are referred
 to Probability distributions where the finding of the best assumption
 for the required return (expected return) will be a goal for us.
I think that the simulation method included in my article of
EMFPS: Efficient Portfolio of Assets
(The Optimization for Risk, Return and Probability)
posted on the link: http://emfps.blogspot.com/,
Will be a good tool to analyze the
 outcomes inferred from PEST analysis.

PS: “BY DIVERSIFYING YOUR BUSINESS, YOUR EXPIRING DATE
WILL NOT BE FINISHED ANY TIME”





Sunday, October 9, 2011

Efficient Portfolio of Assets (The Optimization for Risk, Return and Probability)

What is the Efficient Portfolio of Assets? It is the balance of the risk and the return.
The approach is to maximize the return for a given level of the risk or to minimize the risk for a given level of the return which is the financial manager’s goal.
As you know, the total risk can be divided in two parts as follows:
Total risk = Nondiversifiable risk + Diversifiable risk
The firms can eliminate Diversifiable risk of the assets through diversification.
In this article, I am willing to present the method to decrease the risk for a given level of the return or to increase the return for a given level of the risk into the limited range of the probabilities assigned to the outcomes in two sections:
-Section 1: To optimize the risk, the return and probability for the portfolio of assets
-Section 2: To analyze the behaviour of a single asset during a period of the time
In fact, in the end of this article, you will have a spreadsheet of excel as the template of the designing for the efficient portfolio of assets.
At the first, let me have th debate on Section 1 as follows:
Let me start by using an example. Assume that we have the data for the forecasted returns of assets A, B, C, D, E, and F from 2012 to 2017 as follows:


Assets Return (%)
      Year
A
B
C
D
E
F
2012
7   
19   
7   
25   
8   
17   
2013
9   
16   
11   
21   
10   
15   
2014
11   
14   
13   
19   
12   
13   
2015
14   
12   
16   
15   
14   
11   
2016
18   
10   
20   
12   
16   
9   
2017
21   
8   
23   
9   
18   
6   

As we can see, to diversify the risk of this portfolio, we have Negatively Correlated of the time series. It means that we will be able to diversify the risk of this portfolio to closest to zero.
We are willing to calculate the proportions of each asset which should be combined into our portfolio (A, B, C, D, E, F) to reach the optimization for Expected Portfolio Return Annually, Expected Value of Portfolio Return (2012 -2017), Risk (Coefficient of Variation) and Probability. The procedure of the analysis is step by step as follows:
Step 1) Definitely we can use from the method accompanied by the conditions (1), (2), (3) exempt (4) and (5) included in my previous article of “EMFPS – Construction Works: How Can We Mix Several Types of Aggregates to Find Out the Best Size Gradation?”
Therefore, we can find the proportions of each asset as variables by using of the solving a Matrix Inverse as follows:
Assume we have Matrixes of S, X and P as follows:
S = Matrix (m*n)   Where: m = n
X = Matrix (m*1)
P = Matrix (m*1)
S.X = P
S’ * S * X = S’ * P
S’ * S = I
I * X = S’ * P
I * X = X
X  = S’ * P
We can solve above function by useing of Excel in which Matrix (S) is a (6*6) for asset returns – time, Matrix (X ) is included the proportions of each asset and  Matrix (P) is referred to Expected Portfolio Return Annually (Rp).
Step 2) we should make the numbers for Matrix (P) as our assumptions. The first try is to find the average of all assets A, B, C, D, E, and F for each year as arrays of Matrix (P) where we will have the same the proportions of each asset which is 16.7% (100 / 6) as follows:
Matrix (P) =

      Year

     Rp%
2012

13.83
2013

13.67
2014

13.67
2015

13.67
2016

14.17
2017

14.17


Step 3) we should assume Probability distributions for six outcomes. I have mentioned my assumptions below cited:
 Outcomes                      Probability (%)
-Outcome (1)                   10
-Outcome (2)                   13
-Outcome (3)                   15
-Outcome (4)                   17
-Outcome (5)                   22
-Outcome (6)                   23
Step 4) we should obtain Expected Value of Portfolio Return (2012 -2017) which is calculated as follows:
Rv = SUM [Rp(i) * P(i)]
Step 5) we will get Standard Deviation of expected portfolio returns (Qr) and Coefficient of Variation (CV) by using of below formula:
Qr = {SUM [(Rp(i) – Rv)^2) * P(i)]}^0.5
 CV = Qr / Rv
Step 6) we should evaluate the impact of two independent variables on one dependent variable by using of Sensitivity Analysis method. In this case, (Rp) and (Rv) have been considered as independent variables and CV has been considered as dependent variable. 
Step7) we should find and link the closest CV to zero by using of excel formula as follows:
=INDEX(cell(1):cell(final),MATCH(MIN(INDEX(ABS(cell(1):cell(final),),0,1)),INDEX(ABS(cell(1):cell(final),),0,1),0))
Now, our template for designing is ready. We can use from try and error method in three categories as follows:
A. we fix Rp and change probabilities into limited range for instance, I consider below constant Rp(i):
 Rp(i) = (13.5, 13.55, 13.6, 13.65, 13.7, 13.75, 13.8, 13.85, 13.9, 13.95, 14, 14.05, 14.1)
P(i) = (0.1, 0.13, 0.15, 0.17, 0.22, 0.23)
To change the probabilities into above limited range, we should obtain all Permutations without Repetition by using of VB codes in excel. The number of Permutations without Repetition can be calculated by below formula:
P (n,r) = n! / (n – r)!
Here is: P = 720
B. we fix the probabilities and change Rp(i) into limited range for instance, I consider below assumptions:
P(i) = (0.1, 0.13, 0.15, 0.17, 0.22, 0.23)
Rp(i) = (13.4, 13.5, 13.6,13.7, 13.8, 13.9)
To change Rp(i) into above limited range, we should obtain all Permutations without Repetition by using of VB codes in excel. The number of Permutations without Repetition can be calculated by below formula:
P (n,r) = n! / (n – r)!
Here is: P = 720
C. we change Rp(i) and probabilities simultaneously into limited range for instance, I consider below data:
Rp(i) and P(i) = (13.4, 13.5, 13.6,13.7, 13.8, 13.9, 0.1, 0.13, 0.15, 0.17, 0.22, 0.23)
To change Rp(i) and probabilities simultaneously into above limited range, we should obtain all Permutations without Repetition by using of VB codes in excel. The number of Permutations without Repetition can be calculated by below formula:
P (n,r) = n! / (n – r)!
Here is: P = 479001600
Then we should link and replace all Permutations without Repetition generated into Rp(i) and Probabilities cells in excel and track CV(min). Finally we will obtain Expected Portfolio Return Annually, Expected Value of Portfolio Return (2012 -2017) and Probability which are referred to minimum CV (risk). It will be the Efficient Portfolio of Assets.
I think this method can be utilized and expanded for many industries such as Food industry, Chemical industry, Pharmacology industry, Alloy industry, saving energy industry especially heat exchangers and so on.


Note:  “All spreadsheets and calculation notes are available.
The people, who are interested in having my spreadsheets
of this method as a template for further practice,
do not hesitate to ask me by sending an email to:
 soleimani_gh@hotmail.com or call me on my cellphone:
 +989109250225.
 Please be informed these spreadsheets are not free of charge.”
TO BE CONTINUED .......

Sunday, October 2, 2011

EMFPS: How Can We Mix Several Types of Aggregates to Find Out the Best Size Gradation?


As you know, one of the most important tests to qualify the aggregates used in construction jobs such as Concrete, Pavement (Asphalt), Embankment at Roads and Yards and so on is sieve analysis which determines the particle-size distribution of an aggregate. We have so many tests to qualify the aggregates for instance, Alkali-Aggregate Reaction, Stripping (for chemical properties) and Gradation and size, Toughness and abrasion resistance (Los Angeles Abrasion Test), Durability and soundness, Particle shape and surface texture, Specific gravity, Cleanliness and deleterious materials (for physical properties).
What is different between grading test of aggregate and other tests?
When other tests do not obtain the appropriate results, we have to reject the aggregate. But if we have not a good sorting of sieve analysis which is not compatible with the standards, we will be able to improve the gradation of aggregates by mixing several types of them. As the matter of fact, in the real job, we cannot usually find the aggregate generated in river mining (especially fine aggregate for concrete) in which the particle size distribution of the aggregate (sorting) will be completely compatible with the standards. What can we do?
In this article, I have brought a simple calculation accompanied by an example to solve this problem. Why do I bring you this article? Because I am willing to establish a link between Engineering fields and Financial Management so that in my next article you will see to determine the risk minimizing combination (Risk Diversification), we can use the same method.
Here, I explain this method with an example in the field of Concrete Technology.
Assume we are willing to produce the fresh concrete at the site. One of the most important components of the concrete to gain high workability and economic savings is good sorting of fine aggregate. Two important factors are controlling the fine aggregate of the concrete:

1) Sandy Equivalent (SE) > 75%

2) Fineness Modulus (FM) that should be:  2.4 < FM < 3.2

If Fineness Modulus increases more than 3.2, we have to use more cement to reach our specific compressive strength of concrete accompanied by high workability (75mm < slump < 100mm) in which we will not have any economic savings.


The formula of FM is as follows:
FM = SUM (cumulative percentage on specified sieves) / 100

Where:

F.M =fineness modulus


As we can see, F.M is completely referred to sieve analysis of the fine aggregate.
specified sieves
=
0.150 mm (No. 100), 0.30 mm (No. 50), 0.60 mm (No. 30), 1.18 mm (No. 16), 2.36 mm (No. 8), 4.75 mm (No. 4),  9.5 mm (0.375-in.)
Now, let me bring an example of an available sample of fine aggregate (A) that the sieve analysis is as follows:
Size of sieves    3/8”  No.4    No.8    No.16    No.30     No.50     No.100
Passing (%)       100   85         63         47         28           12            7
We can calculate:      F.M = 3.58
According to ASTM C 33, fine - aggregate grating limits is below cited:
Size of sieves   3/8”    No.4     No.8      No.16     No.30    No.50    No.100
Passing (%)     100     95-100   80-100    50-85     25-60      5-30       0-10           
We can see that fine aggregate (A) is not compatible with ASTM C 33 and so F.M is outside of the limit.
Now, we want to mix two other fine aggregates of (B) and (C) with fine aggregate of (A) so that we will have a new fine aggregate which will cover all standard requirements. The sieve analysis of these two fine aggregates is as follows:
Sieve Analysis of Fine- aggregate (B):
Size of sieves    3/8”      No.4      No.8       No.16      No.30      No.50      No.100
Passing (%)        100        93          85           70            43           23             12
Sieve Analysis of Fine- aggregate (C):
Size of sieves    3/8”      No.4      No.8       No.16      No.30      No.50      No.100
Passing (%)        100      100         97           83           65            43              22
What will be the volume percentages of A, B and C for our mixed aggregate?
Now, we have three variables which are “x” as the volume percentage of A, “y” as the volume percentage of B and “z” as the volume percentage of C.
It is clear, we can easily find these variables by using of the solving aMatrix Inverse as follows:
Assume we have Matrixes of S, X and P as follows:
S = Matrix (m*n)   Where: m = n
X = Matrix (m*1)
P = Matrix (m*1)
S.X = P
S’ * S * X = S’ * P
S’ * S = I
I * X = S’ * P
I * X = X
X  = S’ * P
You can solve above function by useing of Excel (Please see my spreadsheet of Excel).
There are some conditions to solve the matrix extracted from our example (mixed aggregates) below cited:
 1) The number of rows, which are the  the size of sieves, should be equal to the number of the variables (x, y, z) or columns in matrix S. In fact,we have: m = n
The number of rows in matrix X and P are equal to matrix S.
The number of columns in matrix X and P are equal to 1.
2) In this example, “x” is related to aggregate type A and respectively “y” for B and “z” for C.
3) Elements of matrixes (aij) are the same the percentages of passing
4)We should  have enough date issued by the standards such as ASTM, AASHTO and so on.
5) We should use from the best data issued by the standards as Index Data which are compatible with our requirements to solve this matrix. What is the meaning? What are the  Index Data? Here, the Index Data is to choose the size of sieves. One the the most important conditions is to choose the best size of sieves to decrease the variances (Diversification) that it could  be also used to reduce the risk of assets in the field of Financial Management. I will depict it in my next article.
For the better perception, let me continue the example as follows:
According to above mentioned, we have three variables and we should choose three size of sieves included in below table:

                                                       Passing (%)
Size of Sieves      A (x)         B (y)     C (z)       Average of Limits
3/8”                           100            100             100            100
No.4                          85              93               100            97.5
No.8                          63              85               97              90
No.16                        47              70               83              67.5
No.30                        28              43               65              42.5
No.50                        12              23               43              17.5
No.100                       7               12               22              5
     
How can we choose the best Size of Sieves?
Definitely we should diversify and decrease the variances. I suggest you below method as follows:
V1 = [(85- 97.5) +(93 - 97.5) +(100- 97.5)] / 3
V2= ----------------------------------------------
V3 = -----------------------------------------------
V4 = -----------------------------------------------
V5 = -----------------------------------------------
V6 = ----------------------------------------------                               
 Then we should find the least amount of SUM (Vi) which is reaching to zero.
(In formula of SUM (Vi), we should know that n = 3 because we have only three variables and should choose three Size of sieves among six Size of Sieves).   
Of course, it will be very hard and we should obtain all permutations and combinations. I will explain this method completely in my next article about Risk Diversification of Assets in the field of Financial Management.
Now, the size of sieves: No.8, No.16 and No.100 have the least amount of
SUM (V) but when we try to find the variables, we find below percentages:
x = 141%
y = -113%
z = 72% 
F.M = 3.3
As we can see, the results are not logic. Therefore, we should use from next SUM (V) which give us the size of sieves: No.8, No.16 and No.50
The results are as follows:
x = 96%
y = 4%
z = 0%
F.M = 3.5
It means that we should use 96% of aggregate type A and 4% aggregate type B. We do not need to use from aggregate type C.

In fact, to find the appropriate results, you can utilize from try and error method by using of my Excel spreadsheet.




Note:  “All spreadsheets and calculation notes are available.

The people, who are interested in having my spreadsheets

of this method as a template for further practice,

do not hesitate to ask me by sending an email to:
 soleimani_gh@hotmail.com or call me on my cellphone:
 +989109250225.
Please be informed these spreadsheets are not free of charge.”