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Cakulate the expected retun and risk of a portfolio

Cakulate the expected retun and risk of a portfolio

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question six Cakulate the expected retum and risk of a portfolio comprising two securities, assuming that the portfolio weights are 0.75 for security A and 0.25 for secuity B. The expected retum for security A is 18 per cent and its standard deviation is 12 per cent, while the expected retum and standard deviation for security B are 22 per cent and 20 per cent respectively. The correation between the two securities is 0.6. Question seven 21 Shares A, B and C have expected rates of retum of 6% pa and standard deviations ofretums of 10% pa. The coefficients of corelation between the retums are A and B 0.9 A and C 0.2 B and C 0.2 (a) Calculate the risk ofa portfolio of 40% A, 40% B, and 20% C. (b) Suggest a portfolio with bwer risk. (c) What practical difficulties would an investment manager face when cakuating the risk of a portfolio of shares?
Transcribed Image Text:Question six Cakulate the expected retum and risk of a portfolio comprising two securities, assuming that the portfolio weights are 0.75 for security A and 0.25 for secuity B. The expected retum for security A is 18 per cent and its standard deviation is 12 per cent, while the expected retum and standard deviation for security B are 22 per cent and 20 per cent respectively. The correation between the two securities is 0.6. Question seven 21 Shares A, B and C have expected rates of retum of 6% pa and standard deviations ofretums of 10% pa. The coefficients of corelation between the retums are A and B 0.9 A and C 0.2 B and C 0.2 (a) Calculate the risk ofa portfolio of 40% A, 40% B, and 20% C. (b) Suggest a portfolio with bwer risk. (c) What practical difficulties would an investment manager face when cakuating the risk of a portfolio of shares?
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