Mr Sam started building on his portfolio with two best performing stocks - APPX and NOKIZ....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Mr Sam started building on his portfolio with two best performing stocks - APPX and NOKIZ. The table below shows the expected returns and standard deviations of both listed stocks. Expected Return Standard Deviation APPX 9% 15% NOKIZ 6% 10% REQUIRED (a) Given that both assets are equally weighted, calculate the expected returns of the portfolio. [3 marks] (b) Assuming the correlation coefficient is 20%, calculate the standard deviation of the portfolio. [5 marks] The Government announced several favourable measures relating to the industry of APPX. This positive headline triggered an interest to Mr Sam to revise his portfolio. The weightage of APPX now stands at 63%. (c) Calculate the standard deviation of the portfolio. The correlation coefficient is 30%. [5 marks] (d) Describe the investment decision process that an investor needs to consider before making any investment. 110 markel (e) Explain the importance of portfolio diversification with reference to systematic and unsystematic risks. [10 marks] (f) How far does the assumptions of the Capital Asset Pricing Model (CAPM) hold in reality? [10 marks] (g) Discuss the importance of investment philosophy and list down 3 investment philosophies that investors tend to adopt. Mr Sam started building on his portfolio with two best performing stocks - APPX and NOKIZ. The table below shows the expected returns and standard deviations of both listed stocks. Expected Return Standard Deviation APPX 9% 15% NOKIZ 6% 10% REQUIRED (a) Given that both assets are equally weighted, calculate the expected returns of the portfolio. [3 marks] (b) Assuming the correlation coefficient is 20%, calculate the standard deviation of the portfolio. [5 marks] The Government announced several favourable measures relating to the industry of APPX. This positive headline triggered an interest to Mr Sam to revise his portfolio. The weightage of APPX now stands at 63%. (c) Calculate the standard deviation of the portfolio. The correlation coefficient is 30%. [5 marks] (d) Describe the investment decision process that an investor needs to consider before making any investment. 110 markel (e) Explain the importance of portfolio diversification with reference to systematic and unsystematic risks. [10 marks] (f) How far does the assumptions of the Capital Asset Pricing Model (CAPM) hold in reality? [10 marks] (g) Discuss the importance of investment philosophy and list down 3 investment philosophies that investors tend to adopt. Mr Sam started building on his portfolio with two best performing stocks - APPX and NOKIZ. The table below shows the expected returns and standard deviations of both listed stocks. Expected Return Standard Deviation APPX 9% 15% NOKIZ 6% 10% REQUIRED (a) Given that both assets are equally weighted, calculate the expected returns of the portfolio. [3 marks] (b) Assuming the correlation coefficient is 20%, calculate the standard deviation of the portfolio. [5 marks] The Government announced several favourable measures relating to the industry of APPX. This positive headline triggered an interest to Mr Sam to revise his portfolio. The weightage of APPX now stands at 63%. (c) Calculate the standard deviation of the portfolio. The correlation coefficient is 30%. [5 marks] (d) Describe the investment decision process that an investor needs to consider before making any investment. 110 markel (e) Explain the importance of portfolio diversification with reference to systematic and unsystematic risks. [10 marks] (f) How far does the assumptions of the Capital Asset Pricing Model (CAPM) hold in reality? [10 marks] (g) Discuss the importance of investment philosophy and list down 3 investment philosophies that investors tend to adopt. Mr Sam started building on his portfolio with two best performing stocks - APPX and NOKIZ. The table below shows the expected returns and standard deviations of both listed stocks. Expected Return Standard Deviation APPX 9% 15% NOKIZ 6% 10% REQUIRED (a) Given that both assets are equally weighted, calculate the expected returns of the portfolio. [3 marks] (b) Assuming the correlation coefficient is 20%, calculate the standard deviation of the portfolio. [5 marks] The Government announced several favourable measures relating to the industry of APPX. This positive headline triggered an interest to Mr Sam to revise his portfolio. The weightage of APPX now stands at 63%. (c) Calculate the standard deviation of the portfolio. The correlation coefficient is 30%. [5 marks] (d) Describe the investment decision process that an investor needs to consider before making any investment. 110 markel (e) Explain the importance of portfolio diversification with reference to systematic and unsystematic risks. [10 marks] (f) How far does the assumptions of the Capital Asset Pricing Model (CAPM) hold in reality? [10 marks] (g) Discuss the importance of investment philosophy and list down 3 investment philosophies that investors tend to adopt.
Expert Answer:
Answer rating: 100% (QA)
a To calculate the expected return of the portfolio we need to consider the weighted average of the expected returns of the individual stocks Given APPX Expected Return APPX 9 Standard Deviation APPX ... View the full answer
Related Book For
Financial management theory and practice
ISBN: 978-1439078099
13th edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
Posted Date:
Students also viewed these finance questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
The Kelly Services, Inc., and Subsidiaries statements of earnings from its 2008 annual report are presented in Exhibit 5-4. Required a. Using the statements of earnings, prepare a vertical...
-
Suppose you lift a suitcase from the floor to a table. The work you do on the suitcase depends on which of the following; (a) Whether you lift it straight up or along a more complicated path, (b) The...
-
How does the interest rate affect your credit payments? What is meant by simple interest? What is the annual percentage rate (APR), and when is it used?
-
Texas Inpatient Consultants, LLLP, is a partnership that employs physicians to deliver medical care to hospitalized patients of other physicians. Texas Inpatient recruited Julius Tabe, M.D., to work...
-
Jurassic Company owns machinery that cost $900,000 and has accumulated depreciation of $380,000. The expected future net cash flows from the use of the asset are expected to be $500,000. The fair...
-
Suppose your starting salary is $50,000. You would like to open a savings account to save for your retirement and any large future expenses. Most Economists agree that you should allocate 20% of your...
-
Ozuna Company uses a job-order costing system with a plantwide predetermined overhead rate based on direct labor-hours. For job costing purposes, it uses an average direct labor wage rate of $20 per...
-
Wildcat Pizza, a walk-in restaurant located off of State Highway 6, has been in business for 40 years selling their famous ground shorthorn pizza to the community. Customers use a combination of hand...
-
Whilst acknowledging the importance of high quality corporate reporting, the recommendations to improve it are sometimes questioned on the basis that the marketplace for capital can determine the...
-
Calculate the repricing gap and impact on net interest income of a 1 percent increase in interest rates for the following positions: a. Rate-sensitive assets = $138 million; Rate-sensitive...
-
Bonus Shares Suppose Zed Limited has issued 1,00,000 bonus shares to its existing shareholders. What will be the effect on the company's balance sheet after issuing these shares?
-
How should the Air Force and Enterprise Company prepare for risks such as the ones described above (i.e. acquisition freezes and surplus of funds at fiscal year end)? What procurement strategy should...
-
Consumer Reports: The Truth About Car Insurance Review the first 2 screens: https://www.consumerreports.org/cro/car-insurance/credit-scores-affect-auto-insurance-rates/index.htm 1/ How Your Credit...
-
Ms. Sonia Nexus is a computer specialist with net employment income of $96,000 in 2019. She had a pension adjustment of $5,000. During the year ending December 31, 2019 she has: 1. interest income of...
-
Transform the while loop from the previous exercise into an equivalent for loop (make sure it produces the same output).
-
The real risk-free rate of interest is 4%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year...
-
The Nelson Company has $1,312,500 in current assets and $525,000 in current liabilities. Its initial inventory level is $375,000, and it will raise funds as additional notes payable and use them to...
-
Several years ago, Rolen Riders issued preferred stock with a stated annual dividend of 10% of its $100 par value. Preferred stock of this type currently yields 8%. Assume dividends are paid...
-
Compare and contrast the conceptual and physical properties of money.
-
Compare and contrast monetary policy and fiscal policy.
-
Compare and contrast open market operations and reserve requirement.
Study smarter with the SolutionInn App