Question
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]
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Consider the following data for two risk factors (1 and 2) and two securities (J and...
Consider the following data for two risk factors (1 and 2) and
two securities (J and L):
λ0 = 0.06
bJ1 = 0.75
λ1 = 0.03
bJ2 = 1.30
λ2 = 0.04
bL1 = 1.60
bL2 = 2.10
Compute the expected returns for both securities. Round your
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Expected return for security L: %
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