Question
In: Finance
You have been given the following return data on 3 assets; A, B and C over...
- 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 |
- Calculate the portfolio return over the four year period of each of the three alternatives.
- Calculate the standard deviation of returns over the four year period for each of the three alternatives.
- 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 |
- Calculate the portfolio return over the four year period of each of the three alternatives.
- 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 | |||||
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