Question

Suppose an investor is interested in investing 20% in Hewly Packers (HPK) and 80% in General Minting (GMIN). The table below provides data on the last five years of prices and dividends paid for the two stocks. (Use of excel if needed)

  Year   Hewly Packers   General Minting
Price Div       Price   Div
       2013   $45.25   $1.25       $32.25       $0.75
       2014   46.50   1.25      32.50      0.75
       2015   47.50   1.25       33.62     0.75
       2016   46.25   1.25      33.25       0.75
       2017   47.75   1.25       34.37    0.75
       2018   48.87   1.25   35.12     0.75

a) Calculate the returns for HPK and GMIN separately.

b) Calculate the expected return for HP and GM separately.

c) Calculate the standard deviation for HP and GM separately.

d) Calculate the portfolio expected return.
e) Calculate the correlation coefficient.

f) Calculate the portfolio standard deviation.

Answer 1

6 Calculation of Returns for HPK f GRIM, formula for Return Pi - PolD P = Endling stock Po = Initicul stock D = Dividends. price price Year 2013 HPK (46.50-45.25) 4.25 GMIN. 82.50 -32.25 +0.75 = 1:00 48142.50 – 4550+1.25 - 225 (33.62-3250) +0.25 - 187 2015 (46.25-47.50)+1.25 (33.25 -33.62+0.75 22016 (49.75 -46.25)+125 - 2.25 (34.37 -3.258+0.75 = 1:87 TONE (48.8 - 42.25)+1.25 = 2.37 (35.12-34.37) to as 1.50 Calealation of expected return for HPK 4 GMIN. xpected Return is the Antrage of the above calculated returns. J y HPK GAI = 8.50 +2.25+ 0 +2.25+2:39) (1 +1-89 +0.38 + 1:89 +1.50 s 1.974 1:324

c) Calculation of standard deviation formula for Standard deviation (SD) where year sl si n a = stock = mean a No. of HPK di price for each of the values. values. for 2013 6 45.25 -1.77 311329 a 2014 41.50 -0.52 0,2904 2015 47.50 0:48 0 2304 2016 46.25 -0.77 O. 5929 2012 47.75 0.73 0.5329 2018 » 48.8% 1.88 il 3.4225 E=282:12 {=8.182 xi =42:02 80182 bicon I SD V 1.46 866 = 102118.

I Standard deviation for GRIN 2013 2014 2015 32.25 -1.2683 32.30 H.0183 33.62 0.1017 33.25 -0. 2683 34.32 0.8517 35.12 1.6017 E =20111. 1.6086 1.0369 1 0.0103 0.0719 0.2254 2.5654 E.6.0185 2018 201oll=33.5183 6 SD _ SD V (8. 0185) 1.00308 1.001s. - d) Calculation of expected portfolio retwin It is calculated by multiphing the expected return with their respective weights = 1.924 x 20% + 1.324 x 80% = 0.3948 T.4540, t 1.0592

e Calculation of correlation coefficient To calculate Correlation we need to 1 Covaricoce. calculate het value & Hel bex & OMIM bt lay". Covariance Eldi-st) (%-yi) 2 x (x-7) (4. t Vir7) (x-7) y - J.) 45.25 47.02 -1.77 32.25 38.5183 1.6086 46.50 47.02 -0.52 32.50 33.583 1.8369 13 47.50 47.02 0.A8 33.62 38.5183 0.0103 46.25 4202 -0.27 33.25 335183 000719 4.25 4202 0.23 39.37 33583 0.2254 48.82 2.02 legs 35.12 33583 2.5654 E = 682.12 8= 20111 - 208472 -0.5392 0.0049 -0.05536 0.5295 4.7460 E= 1.83889 1.838 84 84 = 0.30647 Countlation blow (x,y) = Cow lay) nxo = 0.30647 1.218 X 1-0015 0.30647 0.25253 1.2136

A calculation of portfolio Standard Dewiston It is calculated by Multipting raspective standard deviations with their weights in a so of HPK & weight & SD & GRIN& Weight 1 +2118 * 20% t 1.00154807. 4355..