A) Given the year end prices of the following stocks, estimate the expected return of a...

A) Given the year end prices of the following stocks, estimate the expected return of a portfolio of 30% AAA and 70% BBB. Enter your answer as a percent without the % sign. Round your final answer to two decimals.

B) Given the year end prices of the following stocks, estimate the standard deviation of the returns of a portfolio of 30% AAA and 70% BBB. Enter your answer as a percent without the % sign. Round your final answer to two decimals.

Year	AAA	BBB
2006	100	55
2007	105	65
2008	120	60
2009	110	70
2010	130	65
2011	160	80

Expert Solution

First we will Calculate Return of AAA and BBB by following formula
rate of return = (closing price -opening price)/Opening price
First year 2007 AAA Return = (105-100)/105 = 5%
BBB Return =(65-55)/55=       18.1818%
Then we will calculate Combined Portfolio Return year wise
return of portfolio = (return of AAA * Weight AAA) + ( Return of BBB* weight BBB)

Year 2007 Return = (5%*30%)+(18.1818%*70%)= 14.2273%

year   AAA   BBB   Portfolio Return


2007   5.0000%   18.1818%   14.2273%
2008   14.2857%   -7.6923%   -1.0989%
2009   -8.3333%   16.6667%   9.1667%
2010   18.1818%   -7.1429%   0.4545%
2011   23.0769%   23.0769%   23.0769%

Expected Return excel function = Average(Cell 1: Cell 5)

=9.1653%

Standard deviation excel function = Stdev(cell 1:cell 5)

=10.0048%

jeff jeffy answered 4 months ago

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