Question

Question Three (B) You have just collected your lump sum from the sale of your building which amounts to 100,000 cedis. You have decided to invest in two assets. From a detailed analysis you decided to invest 60,000 cedis in asset A and 40,000 cedis in asset B. The information gathered about the two assets shows that asset A provides expected return of 12% with a standard deviation of 24% while asset B provides 20% with a standard deviation of 22%. The correlation coefficient between the returns on the two assets is computed by Databank as -0.6. You are required to a) calculate the portfolio expected return (2 marks) b) calculate the portfolio standard deviation (2 marks) c) compute the coefficient of variation on the portfolio. (2 marks)

is urgent. please answer all questions

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

А B С D E F G 1 Portfolio: Value Weight N Expected Standard Return deviation 12% 24% 20% 22% Asset A 60% 3 4. Asset B 60,000 40,000 100,000 40% 5 LC 7 Correlation (A-B) -0.6 oc 9 9 10 a) b) Portfolio expected return Portfolio standard deviation Coefficient of variation 15.20% 11.52% 0.76 11 12 12

Cell reference -

C23 A B D E F 1 Portfolio: Value Weight 2 3 4 Expected Return 0.12 0.2 Standard deviation 0.24 0.22 Asset A 60000 40000 =C3/$C$5 =C4/$C$5 Asset B =SUM(C3:04) 5 6 7 8 Correlation (A-B) -0.6 9 a) Portfolio expected return 10 b) Portfolio standard deviation 11 c) Coefficient of variation 12 13 =SUMPRODUCT(D3:D4, E3:E4) =SQRT((D3*F3)^2+(D4* F4)^2+2*D3*D4*F3*F4*C7) =C10/09

Hope it will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.