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    The document provides instructions for a portfolio assignment. A client's current portfolio is distributed among 6 assets, and the expected return for each asset is given. The student is asked to calculate the expected return and risk of the client's current portfolio, and then reallocate the portfolio to improve return and reduce risk using an attached portfolio model tool. The tool provides templates to compute portfolio expected return, variance, efficient frontier graphs, and identify the optimal portfolio.

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    37 views8 pages
    The document provides instructions for a portfolio assignment. A client's current portfolio is distributed among 6 assets, and the expected return for each asset is given. The student is asked to calculate the expected return and risk of the client's current portfolio, and then reallocate the portfolio to improve return and reduce risk using an attached portfolio model tool. The tool provides templates to compute portfolio expected return, variance, efficient frontier graphs, and identify the optimal portfolio.

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    The document provides instructions for a portfolio assignment. A client's current portfolio is distributed among 6 assets, and the expected return for each asset is given. The student is asked to calculate the expected return and risk of the client's current portfolio, and then reallocate the portfolio to improve return and reduce risk using an attached portfolio model tool. The tool provides templates to compute portfolio expected return, variance, efficient frontier graphs, and identify the optimal portfolio.

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    © All Rights Reserved
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    37 views8 pages

    Fofport 1

    Uploaded by

    Alice
    The document provides instructions for a portfolio assignment. A client's current portfolio is distributed among 6 assets, and the expected return for each asset is given. The student is asked to calculate the expected return and risk of the client's current portfolio, and then reallocate the portfolio to improve return and reduce risk using an attached portfolio model tool. The tool provides templates to compute portfolio expected return, variance, efficient frontier graphs, and identify the optimal portfolio.

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    You are on page 1of 8

    Instructions

    Giddy's Foundations of Finance


    Portfolio Assignment

    You have a client whose portfolio is distributed as follows:


    GPU 0.00%
    Teledyne 25.00%
    Kodak 25.00%
    Thai Fund 0.00%
    Merck 0.00%
    ATT 50.00%
    TOTAL 100%

    His expectations for the returns in each stock are the following:
    GPU 12.67%
    Teledyne 13.96%
    Kodak 14.02%
    Thai Fund 20.75%
    Merck 17.81%
    ATT 11.26%
    What is his portfolio expected return? His portfolio risk?
    Use the attached portfolio model to reallocate his portfolio in
    such a way as to improve his return and risk

    Page 1
    Giddy's Foundations of Finance
    Portfolio Return and Risk Computation

    PORTFOLIO EXPECTED RETURN PORTFOLIO VARIANCE


    CORRELATION MATRIX
    ASSET RETURN WEIGHTPRODUCT STD DE CAN FR GER JAP UK USA
    1 GPU 0.1267 0.00% 0 0.1715 1
    2 Teledyne 0.1396 25.00% 0.0349 0.2893 0.44 1
    3 Kodak 0.1402 25.00% 0.0351 0.3082 0.17 0.65 1
    4 Thai Fund 0.2075 0.00% 0 0.3278 0.22 0.44 0.24 1
    5 Merck 0.1781 0.00% 0 0.341 0.35 0.15 0.13 0.03 1
    6 ATT 0.1126 50.00% 0.0563 0.1606 0.68 0.4 0.43 0.23 0.6327 1
    TOTAL 100%

    Portfolio Variance 3.48%


    Portfolio return 12.63% Portfolio Std Deviation ###

    Weights matrix Variance-covariance matrix


    0 0 0 0 0 0 0.03 0.02 0.01 0.01 0.0204 0.0189
    0 0.0625 0.0625 0 0 0.1 0.02 0.08 0.06 0.04 0.0151 0.0187
    0 0.0625 0.0625 0 0 0.1 0.01 0.06 0.09 0.02 0.0138 0.0214
    0 0 0 0 0 0 0.01 0.04 0.02 0.11 0.0039 0.012
    0 0 0 0 0 0 0.02 0.02 0.01 0 0.1163 0.0346
    0 0.125 0.125 0 0 0.3 0.02 0.02 0.02 0.01 0.0346 0.0258

    Page
    12

    10

    0
    0 2 4 6 8 10 12

    Page
    Efficient Frontier

    The Efficient Frontier

    OPTIMAL PORTFOLIOS
    Given Best Composition
    Return Std. Dev. GPU Teledyne Kodak Thai Fund Merck
    ALL ATT 0.1126 0.1606 0.1126 0% 0% 0% 0% 0%
    0.115 0.1548 0.115 17% 0% 0% 0% 0%
    0.12 0.1494 0.12 33% 0% 5% 2% 0%
    0.125 0.1475 0.125 36% 0% 6% 6% 0%
    MIN RISK 0.1283 0.1471 0.1283 38% 0% 6% 9% 0%
    0.13 0.1472 0.13 39% 0% 7% 11% 0%
    0.14 0.1509 0.14 44% 0% 9% 16% 5%
    0.15 0.1572 0.15 50% 0% 12% 20% 11%
    0.16 0.168 0.16 43% 0% 11% 28% 18%
    0.17 0.184 0.17 30% 0% 9% 37% 24%
    0.18 0.2045 0.18 17% 0% 7% 46% 30%
    0.19 0.2282 0.19 4% 0% 5% 55% 36%
    MAX RETURN 0.2075 0.3278 0.2075 0% 0% 0% 100% 0%
    ORIGINAL 12.63% 18.66% 0.12625 0% 25% 25% 0% 0%

    0.25

    0.2

    0.15

    0.1

    0.05

    0
    0.1 0.15 0.2 0.25 0.3 0.35

    Page 4
    Efficient Frontier

    ATT
    100%
    83%
    60%
    52%
    47%
    44%
    25%
    7%
    0%
    0%
    0%
    0%
    0%
    50%

    Page 5
    Optimal Port.

    Which is the Optimal Portfolio?

    Given the Risk-Free rate is: 5.00% 0.25

    OPTIMAL PORTFOLIOS
    Risk Ratio That's the
    Return Std. Dev. Premium RP/SD
    0.2
    one!
    GPU 0.1126 0.1606 6.26% 0.390
    0.115 0.1548 6.50% 0.420
    0.12 0.1494 7.00% 0.469 0.15

    0.125 0.1475 7.50% 0.508


    MIN RISK 0.1283 0.1471 7.83% 0.532
    0.13 0.1472 8.00% 0.543 0.1
    0.14 0.1509 9.00% 0.596
    0.15 0.1572 10.00% 0.636
    0.16 0.168 11.00% 0.655
    0.05
    0.17 0.184 12.00% 0.652
    0.18 0.2045 13.00% 0.636
    0.19 0.2282 14.00% 0.613
    THAI 0.2075 0.3278 15.75% 0.480 0
    0.1 0.15 0.2 0.25 0.3 0.35

    Page 6
    Opt 2-asset

    What is the optimal portfolio for 2 funds?

    US UK
    ER 18% 12%
    SD 20% 5%
    Corr coefft 50%
    RF 10%

    Weight of UK in optimal portfolio:


    Formula (Ch 7 footnote 3):
    Numerator 0.0004
    Denominator 0.0005

    Ratio 80%

    Page 7
    Port. Beta

    You own a stock portfolio invested 30% in Intel, 20% in


    IBM, 10% in Gateway 2000, and 40% in Microsoft.
    The betas for these four stocks are 1.2, .6, 1.5, and .8,
    respectively.
    What is the portfolio beta?

    Weights Beta Weighted beta


    Intel 0.3 1.2 0.36
    IBM 0.2 0.6 0.12
    Gateway 0.1 1.5 0.15
    Microsoft 0.4 0.8 0.32
    Portfolio 0.95

    Optional assignment: Go to morningstar.net and find the estimated betas for these companies; plug them in.

    Page 8

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