Question

In: Finance

You have been given the following return data on 3 assets; A, B and C over...

  1. You have been given the following return data on 3 assets; A, B and C over the period of 2013 -2016.

Expected return

Year

Asset A

Asset B

Asset C

2013

16

17

14

2014

17

16

15

2015

18

15

16

2016

19

14

17

Using these assets, you have isolated three investment alternatives:

Option

Investment

1

100% of asset A

2

50% of asset A and 50% of asset B

3

50% of asset A and 50% of asset C

  1. Calculate the portfolio return over the four year period of each of the three alternatives.
  2. Calculate the standard deviation of returns over the four year period for each of the three alternatives.
  1. You have been given the following return data on 3 assets; A, B and C over the period of 2013 -2016.

Expected return

Year

Asset A

Asset B

Asset C

2013

16

17

14

2014

17

16

15

2015

18

15

16

2016

19

14

17

Using these assets, you have isolated three investment alternatives:

Option

Investment

1

100% of asset A

2

50% of asset A and 50% of asset B

3

50% of asset A and 50% of asset C

  1. Calculate the portfolio return over the four year period of each of the three alternatives.
  2. Calculate the standard deviation of returns over the four year period for each of the three alternatives.

PLEASE STATE ALL THE FORMULAS CLEARLY AND DUN ANS IN EXCEL.

Solutions

Expert Solution

Answer a

How to compute Portfolio return in excel is shown below. Other two are also computed in the same way in excel

Statement of Total expected return by using the data of each alternative of Investment
Using Alternative 100% of Asset A
Portfolio value($) Year Investment value($) Investment return rate Investment weight Total expected return
100000 2013 100000 16% 1 0.16
17% 1 0.17
18% 1 0.18
19% 1 0.19
Portfolio expected return 0.7
Using Alternative A and B
Portfolio value Year Investment value Investment return rate Investment weight Total expected return
100000 2013 50000 16% 0.5 0.08
2013 50000 17% 0.5 0.085
2014 17% 0.5 0.085
2014 16% 0.5 0.08
2015 18% 0.5 0.09
2015 15% 0.5 0.075
2016 19% 0.5 0.095
2016 14% 0.5 0.07
Portfolio expected return 0.66
Using Alternative A and C
Portfolio value Year Investment value Investment return rate Investment weight Total expected return
100000 2013 50000 16% 0.5 0.08
2013 50000 14% 0.5 0.07
2014 17% 0.5 0.085
2014 15% 0.5 0.075
2015 18% 0.5 0.09
2015 16% 0.5 0.08
2016 19% 0.5 0.095
2016 17% 0.5 0.085
Portfolio expected return 0.66

Answer B

How to calculate SD in excel is exhibited. The other two are computed in the same way

Statement of satandard deviation of three alternatives
Using Alternative 100% of Asset A
Portfolio value($) Year Investment value($) Investment return rate Investment weight Total expected return Standard deviation
100000 2013 100000 16% 1 0.16
17% 1 0.17
18% 1 0.18
19% 1 0.19 0.012909944
Portfolio expected return 0.7
Using Alternative A and B
Portfolio value Year Investment value Investment return rate Investment weight Total expected return
100000 2013 50000 16% 0.5 0.08
2013 50000 17% 0.5 0.085
2014 17% 0.5 0.085
2014 16% 0.5 0.08
2015 18% 0.5 0.09
2015 15% 0.5 0.075
2016 19% 0.5 0.095
2016 14% 0.5 0.07 0.008017837
Portfolio expected return 0.66
Using Alternative A and C
Portfolio value Year Investment value Investment return rate Investment weight Total expected return
100000 2013 50000 16% 0.5 0.08
2013 50000 14% 0.5 0.07
2014 17% 0.5 0.085
2014 15% 0.5 0.075
2015 18% 0.5 0.09
2015 16% 0.5 0.08
2016 19% 0.5 0.095
2016 17% 0.5 0.085 0.008017837
Portfolio expected return 0.66

jeff jeffy answered 1 year ago
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