Question
In: Finance
Richard must decide how to allocate the capital in his portfolio. Richard has $54,000 available to...
Richard must decide how to allocate the capital in his portfolio. Richard has $54,000 available to invest. He finds the rates of return for four stocks for the past 12 years and the results are given below. Richard plans to invest 25% of his funds in each stock. a) How much will he invest in each stock? $13,500 (1 Mark)
b) The expected return of Richard's porfolio is: Enter Answer % (Round your answer to one one-hundreth of a percent)
c) The standard deviation of Richard's portfolio return is: Enter Answer % (1 Mark)(Round your answer to one one-hundredth of a percent) ↑ Year Stock A (%) Stock B (%) Stock C (%) Stock D (%) Enter your Final Answer Here 1 -4.250 -15.460 4.650 -2.080 2 9.440 25.610 -6.302 4.765 3 13.900 38.990 -9.870 6.995 4 11.900 32.990 -8.270 5.995 5 -7.550 -25.360 7.290 -3.730 6 16.810 47.720 -12.198 8.450 7 37.510 109.820 -28.758 18.800 8 14.010 39.320 -9.958 7.050 9 9.150 24.740 -6.070 4.620 10 10.440 28.610 -7.102 5.265 11 -3.560 -13.390 4.098 -1.735 Complete your rough work in the space below 12 0.450 -1.360 0.890 0.270
Solutions
Expert Solution
| Stock % | ||||||
| Year | A | B | C | D | Portfolio return in one year | (Return-Mean Ret.)^2 |
| 1 | 2 | 3 | 4 | 5 | 6 | 7=(col.6-7.99)^2 |
| 1 | -4.25 | -15.46 | 4.65 | -2.08 | -4.285 | 150.6756 |
| 2 | 9.44 | 25.61 | -6.302 | 4.765 | 8.37825 | 0.1507 |
| 3 | 13.9 | 38.99 | -9.87 | 6.995 | 12.50375 | 20.3739 |
| 4 | 11.9 | 32.99 | -8.27 | 5.995 | 10.65375 | 7.0956 |
| 5 | -7.55 | -25.36 | 7.29 | -3.73 | -7.3375 | 234.9323 |
| 6 | 16.81 | 47.72 | -12.198 | 8.45 | 15.1955 | 51.9192 |
| 7 | 37.51 | 109.82 | -28.758 | 18.8 | 34.343 | 694.4806 |
| 8 | 14.01 | 39.32 | -9.958 | 7.05 | 12.6055 | 21.3028 |
| 9 | 9.15 | 24.74 | -6.07 | 4.62 | 8.11 | 0.0144 |
| 10 | 10.44 | 28.61 | -7.102 | 5.265 | 9.30325 | 1.7246 |
| 11 | -3.56 | -13.39 | 4.098 | -1.735 | -3.64675 | 135.4140 |
| 12 | 0.45 | -1.36 | 0.89 | 0.27 | 0.0625 | 62.8453 |
| Sum(12 years) | 108.25 | 292.23 | -71.6 | 54.665 | 95.88625 | 1380.9290 |
| Av. (Sum/12) | 9.02 | 24.35 | -5.97 | 4.56 | ||
| Wt. | 25% | 25% | 25% | 25% | ||
| Exp.ret.(Wt*Av. Return) | 2.26 | 6.09 | -1.49 | 1.14 | ||
| Expected return on the portfolio= sum of the above expected weighted returns=(2.26+6.09+(-1.49)+1.14)= | 7.99 | |||||
| Variance = Squared portfolio return differences/(n-1),ie. | 1380.929/(12-1)= | 125.539 | ||||
| Std. deviation of the portfolio return differences=Sq. rt. Of Variance,ie. | 125.539^(1/2)= | 11.20 | ||||
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