Question

can someone show me what formulas to use for these. i need to make a formula sheet with these. (please label all variables)

PART II: Modern Portfolio Theory Chapter 5: Risk and Return Measures Know to how to calculate: Holding Period Return, expected return and risk in scenario analysis with probability distributions, risk premium, degree of risk aversion (and its interpretation), and Sharpe ratio (and its interpretation), expected return and risk in a portfolio of risky asset plus a risk-free asset. How to draw capital allocation line (CAL).

Answer 1

Alma Formula to calculate: Begioning value > Holding Pesriod Return = Ending value of Porefo Lio Begining value ef Pootfolio weighred average of the Retuns. x 100 Expecred Retuin of Portfoio (X) + with Probability - <PX ay Risk =Vwixo +QXWA XWB x/0x x Oy x8+This is couasiance for each stock co) ECK-8) for each Pair Of stock er with Prebability Risk = JEPCX-R) (for a no. f stocks) Risk Premium = Renon fom Maseket – Retusm foom Riskfsee seciurity Interpretatiớn'- for an individual , a oisk Poemium is Hthe minimum amount at money by which the expected Retwm on a risky asset must exceéd the known retusin on a risk free asset in ordey to induce an iondividuar to hold the risky asset ratheM than the risk free asset. It is posiei ve ik the peion is risk averse. 5> Sharpe Ratio = Expected Reton - Retuin on Riskfree secusrity CHighesi the bete) Intexprerationt when analysing the Shaspe Ratio sthe highesu the Standaxd Deiation 10tue of the Ratio, the more excess retuun inuestors can expecr to receive for the extra volatility they aste exposed to by holding a riskiese asset. 6> capiras Alocation tine = Rf + Rm-Rf 70p where, Rf = Retusn of RiSk free secusity Rm = Marker Retum Om= Risk af maseket Op = Risk of Porefocio. TCAL] 4refficieno inefticientTheory onohe Stocks