In: Finance
Consider the performance of two securities, J and K over the
five year period from 2000...
Consider the performance of two securities, J and K over the
five year period from 2000 to 2004. The annual return earned on
each one of them is as provided in the table below:
Year
|
J
|
K
|
|
%
|
%
|
2000
|
-30.0
|
6.4
|
2001
|
55.9
|
-21.1
|
2002
|
15.7
|
-10.0
|
2003
|
75.9
|
35.0
|
2004
|
5.7
|
15.6
|
|
|
|
Required:
Compute the following:
- The appropriate annual average return for both securities over
the 5-year holding period; assuming re-investment of all returns
for respective years.
[05 Marks]
- Assume your organization had K100 million to invest on 01st
January, 2000. If 60% was invested in security J, what average
return would you have earned from a portfolio comprising the two
securities?
[05 Marks]
- What average volatility would the portfolio be exposed to;
assuming the correlation coefficient between returns on securities
J and K is -0.852?
[05 Marks]
- Evaluate the performance of the securities individually and the
portfolio. Which investment would you advise management to make?
Assume a risk-free rate of 6%.
[05 Marks]
Consider the performance of two securities, J and K over the
five year period from 2000 to 2004. The annual return earned on
each one of them is as provided in the table below:
Year
|
J
|
K
|
|
%
|
%
|
2000
|
-30.0
|
6.4
|
2001
|
55.9
|
-21.1
|
2002
|
15.7
|
-10.0
|
2003
|
75.9
|
35.0
|
2004
|
5.7
|
15.6
|
|
|
|
Required:
Compute the following:
- The appropriate annual average return for both securities over
the 5-year holding period; assuming re-investment of all returns
for respective years.
[05 Marks]
- Assume your organization had K100 million to invest on 01st
January, 2000. If 60% was invested in security J, what average
return would you have earned from a portfolio comprising the two
securities?
[05 Marks]
- What average volatility would the portfolio be exposed to;
assuming the correlation coefficient between returns on securities
J and K is -0.852?
[05 Marks]
- Evaluate the performance of the securities individually and the
portfolio. Which investment would you advise management to make?
Assume a risk-free rate of 6%.
[05 Marks]