[go: up one dir, main page]
Scribd
Upload
221 views3 pages

Assignment Risk and Return

This document contains calculations for risk and return of various financial assets and portfolios. It first calculates the expected return, variance, and standard deviation of two individual assets (A and B). It then does the same for a portfolio consisting of assets A, B, and a new asset C. Finally, it analyzes a combined portfolio of two original portfolios with different betas, expected returns, and standard deviations. The combined portfolio has a beta of 1, expected return of 10%, and standard deviation of 7.09%.

Uploaded by

Cheong Yu Shuang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
221 views3 pages

Assignment Risk and Return

This document contains calculations for risk and return of various financial assets and portfolios. It first calculates the expected return, variance, and standard deviation of two individual assets (A and B). It then does the same for a portfolio consisting of assets A, B, and a new asset C. Finally, it analyzes a combined portfolio of two original portfolios with different betas, expected returns, and standard deviations. The combined portfolio has a beta of 1, expected return of 10%, and standard deviation of 7.09%.

Uploaded by

Cheong Yu Shuang
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Name: Cheong Yu Shuang

Matric No: 191221511


Assignment (Risk and Return)

1.

a) Calculate Expected Return for each of Financial Asset

r^ A = 0.2(12) + 0.5(14) + 0.3(16)


= 14.2%

r^ B = 0.2(6) + 0.5(14) + 0.3(19)


= 13.9%

b) Calculate Variance.

N
2
σ = ∑ (r− r^ ) Pi
2

i=1
2
σ A = ( 12−14.2 )2 (0.2) + ( 14−14.2 )2 (0.5) + ( 16−14.2 )2(0.3)
= 0.968 + 0.02 + 0.972
= 1.96%

σ 2B = ( 6−13.9 )2 (0.2) + ( 14−13.9 )2 (0.5) + ( 19−13.9 )2( 0.3)


= 12.482 + 0.005 + 7.803
= 20.29%

c) Calculate Standard Deviation.

σ = √σ2
N
=
√∑ i=1
( r−^r )2 Pi

σA = √ 1.96 σB = √ 20.29
= 1.40% = 4.50%
2. Investment portfolio is made up of 50 per cent of financial assets A, 25 per cent of financial
assets B and the remaining 25 per cent of financial asset C.

a) Calculate Expected Return for each Financial Asset.

r^ A = 0.45(11) + 0.55(9)
= 9.90%

r^ B = 0.45(16) + 0.55(5)
= 9.95%

r^ C = 0.45(21) + 0.55(0)
= 9.45%

b) Calculate Expected Return for the portfolio of Financial Asset of A, B and C.

N
r^ P = ∑ wi r^ i
i=1

= 0.5(9.90) + 0.25(9.95) + 0.25(9.45)


= 9.80%

c) Calculate Variance.

σ 2A = ( 11−9.90 )2 (0.45) + ( 9−9.90 )2 (0.55)


= 0.99%
σ 2B = ( 16−9.95 )2 (0.45) + 5−9.952 (0.55)
= 29.95%

σ 2C = (21−9.45¿ ¿ 2( 0.45) + ( 0−9.45 )2 (0.55)


= 109.15%
d) Calculate Standard Deviation.

σA = √ 0.99
= 0.99%

σB = √ 29.95
= 5.47%

σC = √ 109.15
= 10.45%

3. Bob has a $50,000 stock portfolio with a beta of 1.2, an expected return of 10.8%, and a
standard deviation of 25%. Becky also has a $50,000 portfolio, but it has a beta of 0.8, an
expected return of 9.2%, and a standard deviation that is also 25%. The correlation coefficient, r,
between Bob's and Becky's portfolios is zero. If Bob and Becky marry and combine their
portfolios, which of the following best describes their combined $100,000 portfolio?

a) Portfolio’s beta?

Portfolio beta= (0.5 × 1.2) + (0.5× 0.8)


=1

b) Expected return?
r^ p = 0.5(10.8) + 0.5(9.2)

= 10%

c) Standard deviation?
σ p = √ σ2p
N
=
√∑
i=1
( r−^r p )2 Pi

= √ ( 0−10.8 )2 ( 0.5 )2 + ( 0−9.2 )2 ( 0.5 )2


= √ 50.30045
= 7.09

You might also like