Question

4. Portfolio expected return and risk Aa Aa A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk analysis an integral part of the field of finance. Just like stand-alone assets and securities, portfolios are also exposed to risk. Portfolio risk refers to the possibility that an investment portfolio will not generate the investor's expected rate of return. Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio. Consider the following case: Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table: Expected Return Percentage of Portfolio 20% 30% Stock Artemis Inc. Babish & Co. Cornell Industries Danforth Motors Standard Deviation 28.00% 32.00% 6.00% 14.00% 35% 13.00% 35.00% 15% 3.00% 37.00% What is the expected return on Andre's stock portfolio? 7.80% 14.04% 10.40% 15.60% Suppose each stock in Andre's portfolio has a correlation coefficient of 0.4 (p = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 33%, the portfolio's standard deviation (op) most likely is 33%.

Answer 1

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C w ENG 07:02 30-07-2020 99+ 29 Х E302 X E F. G H j K 285 286 287 288 289 290 WEIGHTS A ARTEMIS 20% RETURN WEIGHTED RETURN B A*B 6% 1.20% 14% 4.20% 13% 4.55% 3% 0.45% BABISH CORNELL DANFORTH 30% 35% 15% 291 292 293 294 295 ANSWER: 296 EXPECTED RETURN ON PORTFOLIO = 10.40% IT WOULD BE LESS THAN 33% 297 ANSWER : 298 299 300 301 AS NO OF STOCKS ARE ADDED WITH LOWER CORRELATION COEEFICIENT, RISK WILL BE LOWER THEN AVERAGE STANDARD DEVIATION 302 303 304 305 306 307 308 KE CAPM UTILITY, SHARPE, beta CoNvexity DGM beta VAR port future INDEX WACC HEDGE INTL CAP BUD Sheet11 SANDI ... +