two-security portfolio, depends upon theThe diversification of unsystema Tisk, using aAB. Thecorrelation is done through calculation of correlation coefficient of two securities (PAcorrelation that exists between the returns of those two securities. The quantification ofvalue of correlation ranges between -1 to 1; it can be interpreted as follows:If PAB= 1, No unsystematic risk can be diversified.If PABIf PAR= 0, No correlation exists between the returns of Security A and Security B.Illustration 12: The returns of Security of Wipro and Security of Infosys for the past six years aregiven below:Year20032004200520062007= -1, All unsystematic risks can be diversified.Security of Wipro Return (%)9531216Calculate the risk and return of portfolio consisting.Security of Infosys Return (%)10-612915

Let us denote the security of Wipro return by "X "and security of Infosys return by "Y". Data given…

Illustration 12: The returns of Security of Wipro and Security of Infosys for the past six years are given below: Year 2003 2004 2005 2006 2007 Security of Wipro Return (%) 9 5 3 12 16 Calculate the risk and return of portfolio consisting. Security of Infosys Return (%) 10 -6 12 9 rity B. 15

Illustration 12: The returns of Security of Wipro and Security of Infosys for the past six years are given below: Year 2003 2004 2005 2006 2007 Security of Wipro Return (%) 9 5 3 12 16 Calculate the risk and return of portfolio consisting. Security of Infosys Return (%) 10 -6 12 9 rity B. 15

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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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

two-security portfolio, depends upon the
The diversification of unsystema Tisk, using a
AB. The
correlation is done through calculation of correlation coefficient of two securities (PA
correlation that exists between the returns of those two securities. The quantification of
value of correlation ranges between -1 to 1; it can be interpreted as follows:
If PAB= 1, No unsystematic risk can be diversified.
If PAB
If PAR= 0, No correlation exists between the returns of Security A and Security B.
Illustration 12: The returns of Security of Wipro and Security of Infosys for the past six years are
given below:
Year
2003
2004
2005
2006
2007
= -1, All unsystematic risks can be diversified.
Security of Wipro Return (%)
9
5
3
12
16
Calculate the risk and return of portfolio consisting.
Security of Infosys Return (%)
10
-6
12
9
15

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7. The following data are available to you as portfolio manager: Security Estimated return (%) Beta A 40 3.0 B 35 2.5 30 1.0 D 17.5 1.8 E 20.0 1.5 Market Index 25 2.0 Govemment Security 17 a) In terms of the security market line, which of the securities listed above are underpriced? b) Assuming that a portfolio is constructed using equal proportions of the five securities listed above, calculate the expected retum and risk of such a portfolio.
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