Over the period of time 2006-2015, Maura's actual return (per dollar of stock) was 0.013469 per month,
Question:
Over the period of time 2006-2015, Maura's actual return (per dollar of stock) was 0.013469 per month, Ward's actual return was 0.013543 per month, and Goldsmith's actual return was 0.006504. Under certain assumptions, including that whatever underlying process generated the past set of observations will continue to hold in the present and near future, we can estimate the expected return for a stock portfolio containing these assets in some combination.
Suppose we have a portfolio that has 20% of our total wealth in Maura, 30% in Ward, and 50% in Goldsmith stock. Use the following steps to estimate the portfolio's historical return, which can be used to estimate the future return.
(a) Write a 1 × 3 matrix that defines the decimal part of our total wealth in Maura, in Ward, and in Goldsmith.
(b) Write a 3 × 1 matrix that gives the monthly returns from each of these companies. (c) Find the historical return of the portfolio by computing the product of these two matrices.
(d) What is the expected monthly return of the stock portfolio?
Expected ReturnThe expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
Step by Step Answer:
Mathematical Applications for the Management Life and Social Sciences
ISBN: 978-1305108042
11th edition
Authors: Ronald J. Harshbarger, James J. Reynolds