You are an active investor in the securities market and you have established an investmentportfolio of two stock A and B five years ago.Required:a) If your portfolio has provided you with returns of 9.7%, -6.2%, 12.1%, 11.5% and 13.3%over the past five years, respectively. Calculate the geometric average return of theportfolio for this period?b) Assume that expected return of the stock A in your portfolio is 14.6%. The risk premiumon the stocks of the same industry are 5.8%, the risk-free rate of return is 5.9% and theinflation rate was 2.7. Calculate beta of this stock using Capital Asset Pricing Model(CAPM) c) Assume that you bought 200 stock B in your portfolio for total investment of $1200, nowthe market price of the stock is $75, the dividend paid for this stock is $2 each year. Howmuch is the capital gain of this stock?d) Assume that the following data available for the portfolio, calculate the expected return,variance and standard deviation of the portfolio given stock A accounts for 45% and stockB accounts for 55% of your portfolio? A BExpected return 12.5% 18.5%Standard Deviation of return 15% 20%Correlation of coefficient (p) 0
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
You are an active investor in the securities market and you have established an investment
portfolio of two stock A and B five years ago.
Required:
a) If your portfolio has provided you with returns of 9.7%, -6.2%, 12.1%, 11.5% and 13.3%
over the past five years, respectively. Calculate the geometric average return of the
portfolio for this period?
b) Assume that expected return of the stock A in your portfolio is 14.6%. The risk premium
on the stocks of the same industry are 5.8%, the risk-free rate of return is 5.9% and the
inflation rate was 2.7. Calculate beta of this stock using Capital Asset Pricing Model
(CAPM)
c) Assume that you bought 200 stock B in your portfolio for total investment of $1200, now
the market price of the stock is $75, the dividend paid for this stock is $2 each year. How
much is the capital gain of this stock?
d) Assume that the following data available for the portfolio, calculate the expected return,
variance and standard deviation of the portfolio given stock A accounts for 45% and stock
B accounts for 55% of your portfolio?
A B
Expected return 12.5% 18.5%
Standard Deviation of return 15% 20%
As per rules supposed to solve only first three subparts so pleases post the remaining questions as a separate one.
Given:
| Expected return | 14.60% |
| Risk Premium | 5.80% |
| Risk free rate | 5.90% |
| Inflation rate | 2.70% |
Formula used:
Geometric average return =
a)
The objective is to calculate the Geometric average return
It is known that Geometric average return=
| R1 | 9.70% |
| R2 | -6.20% |
| R3 | 12.10% |
| R4 | 11.50% |
| R5 | 13.30% |
| GAR | 1.80% |
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