Question-1 Consider a company whose stock is expected to follow the following pattern under the different economic
Question:
Question-1
Consider a company whose stock is expected to follow the following pattern under the different economic situations:
Return (%) Probabilities -20 0.05 -10 0.10 10 0.20 15 0.25 20 0.20 25 0.15 30 0.05
Required:
a) Calculate the expected rate of return of the company
b) How risky is the company's share?
Question-2
Consider a portfolio with assets which follow the probability distribution for the returns on stocks X and Y below:
State Probability Return on Stock X Return on Stock Y 1 20% 5% 50% 2 30% 10% 30% 3 30% 15% 10% 3 20% 20% -10%
Required: Assuming the wealth of the investor can be shared between stock X and stock Y in the ratio 40%:60%; i) Calculate the expected return of a portfolio
ii) Calculate the covariance of the returns of stocks X and Y
iii) Calculate the correlation coefficient between the stocks X and Y iv) Calculate the portfolio risk
Question-3
An investor is interested in building a portfolio consisting of 3 securities with the following variance and covariance values;
Variance Covariance Weights = 0.4 0.3 w1= 0.2 = 0.5 0.1 w2= 0.3 = 0.6 0.2 w3= 0.5
Required:
Compute the standard deviation of the portfolio
Question-4
A Kenyan investor is considering investing his funds in two different risky assets; the Kenyan (NSE) equity index and an index of the Japan's equity (Nikkei) which are expected to generate returns and risks as follows: Expected return Expected risk Kenya's NSE Equity Index 14% 11% Japan's Nikkei's Equity index 18% 13% Correlation coefficient (r) -0.38 If the weights of the investments in the two securities are Wkenya is 40% and Wjapan 60%. Required:
Calculate the expected portfolio return
Calculate the portfolio risk
Calculate the portfolio weights that would give the lowest risk
What would be the expected portfolio return at the weights in (c) above.
Question-5
An investor has constructed a portfolio of two assets whose facts are as follows:
Asset-X Asset-Y Expected return 22% 17% Risk 9% 6% The correlation coefficient is given as -0.4.
Required:
Calculate the expected return for the minimum variance portfolio and the corresponding portfolio risk.
Understanding Basic Statistics
ISBN: 9781111827021
6th Edition
Authors: Charles Henry Brase, Corrinne Pellillo Brase