Question Bank – Portfolio Management
1. Define Risk. Explain various types of Risk
2. Calculate Standard deviation of a security from the data below;
Year Returns (%)
1 15
2 12
3 20
4 -8
5 6
3. You are required to calculate expected return of the portfolio using the data below;
Rate of Returns (%)
State of Probability of Stock A Stock B
Economy occurrence
Boom 0.30 16 40
Normal 0.50 11 10
Recession 0.20 6 -20
4.
Stock A Stock B
Expected Return 16% 12%
Standard Deviation 15% 8%
Co-efficient of
0.60
Correlation
(a) What is the covariance between Stock A and B?
(b) What is the expected return and risk of a portfolio in which A and B have weights of
0.6 and 0.4?
5. Calculate beta of the stock using the following data
a. Risk free rate of return: 5%
b. Stock return: 12%
c. Market Return: 10.50%
6. A Portfolio consist of two securities, Security X and Security Y in proportion of 0.60 and 0.40
respectively. The Standard Deviation of the returns of the security X and Y are 10 and 16
respectively. The co-efficient of correlation between the returns of on security X and Y is 0.5.
What is the standard deviation of the portfolio return?
7. Calculate the Alpha of a portfolio from the following information
Portfolio Return = 18%
Risk Free Rate = 6%
Beta = 1.20
Market Returns =13%
8. Discuss in detail CML and SML.
9. Compare the following 3 funds using the Treynor Measure, Sharpe Measure and Jensen
Measure.
Fund A Fund B Fund C Market Risk Free
Returns Return
Mean 17.1 14.5 13.0 11 8.6
SD 28.1 19.7 22.8 20.5 -
Beta 1.20 0.92 1.04 1.00 -
10. A portfolio consist of 3 securities 1,2 and 3. The proportion these stocks are 0.3, 0.5, 0.2
respectively. The standard deviation of these securities are σ1= 6, σ2= 9 and σ3= 10
respectively. The correlation co-efficient of these securities are ρ12=0.4, ρ13=0.6, ρ23=0.7 .
What is the Standard Deviation of the portfolio?
11. Calculate expected return of Stock X ltd, using SML method
from the following information;
Market Return 12%, Beta of Stock(β): 0.80. Risk free: 5.5%
12. Consider stock P & Q, both are perfectly negatively correlated.
E(Rp)= 16%, E(Rp)= 18%, σp= 25%, σQ= 30%. What is the expected return
of a portfolio constructed to drive the standard
deviation of portfolio return to ZERO?
13. Calculate expected return of portfolio j, if it falls on CML,
from the following information: Rf = 6%, E(Rm)= 14%, σj = 6.
14. Using M2 measure evaluate the following portfolios
Portfolio A Portfolio B Portfolio C Market
Portfolio
Mean Return 22% 18% 15% 13%
Standard 16% 14% 12% 10%
Deviation
Risk Free rate 6.5%
15. Write a short note on Standard Deviation.
