This document contains 9 exercises related to calculating expected returns, standard deviations, and portfolio optimization for various stocks and asset allocations. The exercises provide historical price and dividend data for analyzing individual stocks and combining them into portfolios. The goal is to estimate metrics like expected return and risk, then determine the best assets or portfolios based on those metrics.
This document contains 9 exercises related to calculating expected returns, standard deviations, and portfolio optimization for various stocks and asset allocations. The exercises provide historical price and dividend data for analyzing individual stocks and combining them into portfolios. The goal is to estimate metrics like expected return and risk, then determine the best assets or portfolios based on those metrics.
This document contains 9 exercises related to calculating expected returns, standard deviations, and portfolio optimization for various stocks and asset allocations. The exercises provide historical price and dividend data for analyzing individual stocks and combining them into portfolios. The goal is to estimate metrics like expected return and risk, then determine the best assets or portfolios based on those metrics.
This document contains 9 exercises related to calculating expected returns, standard deviations, and portfolio optimization for various stocks and asset allocations. The exercises provide historical price and dividend data for analyzing individual stocks and combining them into portfolios. The goal is to estimate metrics like expected return and risk, then determine the best assets or portfolios based on those metrics.
a. Estimate the expected return and risk of each stock.
b. Which stock should be invested if the investor is considering stock A and B.
c. Assume that an investor invests in a portfolio with 50% in stock A, and 50% in stock B. Calculate the expected return and standard deviation of portfolio.
Exercise 4: Stock A and B have expected return respectively as follow:
Economic scenario Probability Stock A Stock B
Good 20% 14% 20% Normal 40% -5% -2% Bad 40% 10% 9%
a/ Calculate expected return and standard deviation of the two stocks.
b/ Should we combine the two stocks to diversify the risk of the portfolio.
c/ What are expected return and standard deviation of the risky portfolio P which invests 60% in A stock and 40% in B stock. Exercise 5
An investor consider to invest in three financial assets, including stock S and stock B with the information belows. Given that risk-free rate is 2%
Price of Dividend Price of Dividend
Year stock S of stock S stock B of stock B 1 32.5 15 2 2 35.2 5 16.5 3 33.8 17.2 4 35.9 4 18.6 5 37.1 18.5 6 37.5 19.9 2 7 38.3 19.4
a/ Calculate expected return and standard deviation of the two stocks.
b/ Which stock should be invested if the investor is considering stock S and B.
c/ Should we combine the two stocks to diversify the risk of the portfolio.
d/ Assume that an investor invests in a portfolio with 30% in stock S, and the remaining in stock B. Calculate the sharp ratio of this portfolio Exercise 6
Following table exhibits historical return of stock A, B, and C for the period from year 1 to year. Given that risk-free rate is 2.8%
a. Estimate the expected return and standard deviation of each stock.
b. Which stock should be invested if the investor is considering stock A, stock B and stock C
c. Assume that an investor invests in Portfolio 1 with 45% in stock A, and the remainding in stock B. Calculate the expected return and standard deviation of portfolio.
d. Should we combine the stock A and stock C to form a portfolio.
e. Assume that an investor invests in Portfolio 2 with 30% in stock B, and the remainding in stock C. Calculate the expected return and standard deviation of portfolio.
f. If investor is considering between Portfolio 1 and Portfolio 2. Which portfolio should investor choose?
Exercise 7
An investor consider to invest in three financial assets, including stock A, stock B and stock C with the information belows. Given that risk-free rate is 4%
Dividend of Price of Dividend Price of Dividend
Price of Year stock A stock B of stock B stock C of stock stock A C 1 46.3 8 25 4 19.3 2 2 49.5 9 27.2 21.5 2 3 45.2 29.4 22.6 4 4 50.1 6 28.6 20.9 4 5 51.2 30.5 25.3 5 6 53.5 32.4 6 25.9 6 7 54.2 31.6 27.2
a/ Calculate expected return and standard deviation of the three stocks.
b/ Which stock should be invested if the investor is considering stock A and B.
c/ Which stock should be invested if the investor is considering stock A, stock B and stock C.
d/ Should we combine the stock A and stock B to diversify the risk of the portfolio.
e/ Should we combine the stock A and stock B to diversify the risk of the portfolio
f/ Assume that an investor invests in Portfolio 1 with 25% in stock A, and the remaining in stock B. Calculate the sharp ratio of this portfolio
g/ Assume that an investor invests in Portfolio 2 with stock B and stock C and the expected return of Portfolio 2 is 18.3%. Calculate the investment proportion of stock B and stock C.
h/ Which portfolio investor should choose if he is considering between Portfolio 1 and Rortfolio 2.
Exercise 8
An investor consider to invest in three financial assets, including stock S and stock B with the information belows. Given that risk-free rate is 2%
Dividend of Price of Dividend Price of Dividend
Price of Year stock A stock B of stock B stock C of stock stock A C 7 36.7 2 15 19.5 6 39.3 9 19.2 2 21.1 2 5 35.1 18.4 3 22.8 4 30.9 6 18.6 20.9 6 3 31.1 2 24.5 25.2 5 2 43.5 26.4 5 25.4 7 1 44.2 4 24.6 27.1
a/ Calculate expected return and standard deviation of the three stocks.
b/ Which stock should be invested if the investor is considering stock A, stock B and stock C c/ Assume that an investor invests in a portfolio with 73% in stock C and the remainding in a risk-free asset with a return of 2%. Calculate the sharp ratio of this portfolio.
Exercise 9 An investor consider to invest in three financial assets, including stock A and stock B with the information belows. Given that risk-free rate is 4.5%
Price of Dividend of Price of Dividend
Year stock A stock A stock B of stock B 1 19.52 5 29.21 3 2 24.67 2 28.14 3 22.31 32.52 2 4 27.12 6 34.27 5 28.53 35.67 1
a/ Calculate expected return and standard deviation of the three stocks.
b/ Should we combine the stock A and stock B to diversify the risk of the portfolio
c/ Assume that an investor invests in Portfolio 1 with 38.54% in stock A, and the remaining in stock B. Calculate the expected return and standard deviation of Portfolio 1
d/ Assume that an investor invests in Portfolio 2 with stock A and stock B and the expected return of Portfolio 2 is 15.86%. Calculate the sharpe ratio of Portfolio 2
e / Which portfolio investor should choose if he is considering between Portfolio 1 and Portfolio 2. CHAPTER 4+ 5 1. An investor is considering to invest in stock and bond in the following table:
a. Expected return and standard deviation of the stock and bond.
b. Expected return and standard deviation of the risky portfolio P:
+ 60% in stock and 40% bonds.
+ 100% invest in Stocks
+ 100% invest in Bonds
2. Price in 2013 of stock X and Y are $54 and $32 respectively. A financial analyst of ABC Security Company forecasts the price of stock X and Y after 1 year as following:
Period X Y
2014 52 30
2015 58 39
2016 55 32
2017 53 37
2018 64 39
a. What are expected return and standard deviation of the two stocks.
b. What are expected return and standard deviation of the risky portfolio P which invests 60% in stock X and 40% in stock Y.
c. How much should investor invest in risky portfolio P in order to construct an optimized complete portfolio, given risk-free rate is 6% and A = 3. d. What are expected return and standard deviation of optimized complete portfolio?
3. Current price of stock X and Y are $54 and $32 respectively. A financial analyst of ABC Security Company forecasts the price of stock X and Y after 1 year as following:
Economic conditions Probability Price of stock X Price of stock Y
Bad 0.2 42 27
OK 0.4 58 35
Good 0.4 65 40
a. What are expected return and standard deviation of the two stocks.
b. What are expected return and standard deviation of the optimal risky portfolio P which invests 40% in stock X and 60% in stock Y.
c. How much should investor invest in risky portfolio P in order to construct an optimized complete portfolio, given risk-free rate is 5% and A = 2.
d. What are expected return and standard deviation of optimized complete portfolio?
e. Is there another portfolio which has expected return 18% and standard deviation 22%. Which portfolio should the investor invest on?
4. Stock A, B, C and D have expected return and standard deviation respectively as follow
Stock Expected return Standard deviation
A 5% 0%
B 12% 8%
C 18.8% 17%
D 29% 25%
a) Which stock a risk- neutral investor is most likely to choose ?
b) Which stock a risk- seeking investor is most likely to choose, given that his risk aversion has a value of A= 3 c) Calculate the return and standard deviation of the portfolio which invest 45% in stock B and the remainding in stock C, given that the correlation of stock B and C is 0.5 d) Which stock should be invested if the investor is considering stock C and stock .
5. An investor is considering adding a risk-free asset with a return of 3% into his risky portfolio. The expected return and standard deviation of the risky portfolio is 7% and 15%. His risk aversion value is 2 a) Calculate the optimal proportion invested in risk-free asset b) Write an equation for the capital allocation line that will connect the risk-free asset to the portfolio of risky assets c) What is the standard deviation of the new portfolio that gives a 9% return and is on the capital allocation line?
