Question

In: Finance

as a financial student you are presented with the following forecasted returns by Anna who requires...

as a financial student you are presented with the following forecasted returns by Anna who requires your assistance:

      Assets($)

Year

Shares

Bonds

Derivatives

2021

45

64

120

2022

76

71

90

2023

50

102

77

2024

29

90

63

2025

80

84

70

You are requested to compute the risk involved if Anna decides to invest in the following portfolio:

a) 20% in shares and the rest in Derivatives?

Solutions

Expert Solution

To calculate risk involved in the portfolio consisting of 20% shares and 80% Derivatives, first we have to find out following -

  1. Standard Deviation of Shares (SD1)
  2. Standard Deviation of Derivative (SD2)
  3. Correlation between shares and derivative. (r​​​​​​12​​​​)
  4. Covariance between shares and derivative (Cov​​​​(x,y))

Now see the photos of Answer.

jeff jeffy answered 2 years ago
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