Question
In: Finance
Calculate: 1) Covariance 2) Expected return on a portfolio XY 2) Risk on a portfolio XY...
Calculate:
1) Covariance
2) Expected return on a portfolio XY
2) Risk on a portfolio XY
Weight of each asset is 50%.
Average annual return:
asset X: 11.74%
asset Y: 11.14%
Standard deviation:
asset X: 8.9
asset Y: 2.78
| Asset X | |||
| Value | |||
| Year | Cash Flow | Beginning | Ending |
| 2006 | $1,000 | $20,000 | $22,000 |
| 2007 | 1500 | 22000 | 21000 |
| 2008 | 1400 | 21000 | 24000 |
| 2009 | 1700 | 24000 | 22000 |
| 2010 | 1900 | 22000 | 23000 |
| 2011 | 1600 | 23000 | 26000 |
| 2012 | 1700 | 26000 | 25000 |
| 2013 | 2000 | 25000 | 24000 |
| 2014 | 2100 | 24000 | 27000 |
| 2015 | 2200 | 27000 |
30000 |
| Asset Y | |||
| Ending | |||
| Year | Cash Flow | Beginning | Ending |
| 2006 | $1,500 | $20,000 | $20,000 |
| 2007 | 1600 | 20000 | 20000 |
| 2008 | 1700 | 20000 | 21000 |
| 2009 | 1800 | 21000 | 21000 |
| 2010 | 1900 | 21000 | 22000 |
| 2011 | 2000 | 22000 | 23000 |
| 2012 | 2100 | 23000 | 23000 |
| 2013 | 2200 | 23000 | 24000 |
| 2014 | 2300 | 24000 | 25000 |
| 2015 | 2400 | 25000 | 25000 |
Solutions
Expert Solution
| Asset X | ASSET X | ||||||||||
| A | B | C | D=(C-B)+A | R=(D/B)*100% | |||||||
| Year | Cash Flow | Beginning | Ending | Annual Gain/(Loss) | Annual Return | ||||||
| 2006 | $1,000 | $20,000 | $22,000 | $3,000 | 15.00% | ||||||
| 2007 | 1500 | 22000 | 21000 | $500 | 2.27% | ||||||
| 2008 | 1400 | 21000 | 24000 | $4,400 | 20.95% | ||||||
| 2009 | 1700 | 24000 | 22000 | ($300) | -1.25% | ||||||
| 2010 | 1900 | 22000 | 23000 | $2,900 | 13.18% | ||||||
| 2011 | 1600 | 23000 | 26000 | $4,600 | 20.00% | ||||||
| 2012 | 1700 | 26000 | 25000 | $700 | 2.69% | ||||||
| 2013 | 2000 | 25000 | 24000 | $1,000 | 4.00% | ||||||
| 2014 | 2100 | 24000 | 27000 | $5,100 | 21.25% | ||||||
| 2015 | 2200 | 27000 | 30000 | $5,200 | 19.26% | ||||||
| Total | 117.36% | ||||||||||
| Expected Return of X | 11.74% | (117.36/10) | |||||||||
| Standard Deviation of X | 8.90% | (Using STDEV function of excel) | |||||||||
| Asset Y | ASSET Y | ||||||||||
| Ending | D=(C-B)+A | R=(D/B)*100% | |||||||||
| Year | Cash Flow | Beginning | Ending | Annual Gain/(Loss) | Annual Return | ||||||
| 2006 | $1,500 | $20,000 | $20,000 | $1,500 | 7.50% | ||||||
| 2007 | 1600 | 20000 | 20000 | $1,600 | 8.00% | ||||||
| 2008 | 1700 | 20000 | 21000 | $2,700 | 13.50% | ||||||
| 2009 | 1800 | 21000 | 21000 | $1,800 | 8.57% | ||||||
| 2010 | 1900 | 21000 | 22000 | $2,900 | 13.81% | ||||||
| 2011 | 2000 | 22000 | 23000 | $3,000 | 13.64% | ||||||
| 2012 | 2100 | 23000 | 23000 | $2,100 | 9.13% | ||||||
| 2013 | 2200 | 23000 | 24000 | $3,200 | 13.91% | ||||||
| 2014 | 2300 | 24000 | 25000 | $3,300 | 13.75% | ||||||
| 2015 | 2400 | 25000 | 25000 | $2,400 | 9.60% | ||||||
| Total | 111.41% | ||||||||||
| Expected Return of Y | 11.14% | (111.41/10) | |||||||||
| Standard Deviation of Y | 2.78% | (Using STDEV function of excel) | |||||||||
| Correlation of X&Y | 0.482318623 | (Using CORREL Function of excel) | |||||||||
    |
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