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Sharpe Index Model: Portfolio Expected Return E (R) o

This document provides information and questions about portfolio analysis and the Sharpe and Markowitz models. It includes sample data on securities' expected returns, betas, variances, and other metrics needed to calculate the efficient frontier and optimal portfolios. Questions ask to calculate portfolio return, variance, and optimal portfolios given different market conditions and security data.

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Alissa Barnes
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762 views2 pages

Sharpe Index Model: Portfolio Expected Return E (R) o

This document provides information and questions about portfolio analysis and the Sharpe and Markowitz models. It includes sample data on securities' expected returns, betas, variances, and other metrics needed to calculate the efficient frontier and optimal portfolios. Questions ask to calculate portfolio return, variance, and optimal portfolios given different market conditions and security data.

Uploaded by

Alissa Barnes
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Sharpe Index Model

1. How many inputs are needed for a portfolio analysis involving 50 securities, for Sharpe and Markowitz
models?
Solution
Sharpe = (3 N) + 2
Markowitz = [N(N+3)]/2
2. The following" table provides information regarding the portfolio return and risk






(a) Treasury Bill rate is 5% , which portfolio is the best?
(b) Would it be possible to earn 12% return with SD of 4%?
(c) If SD is 12% what would be the expected return?
3. An investor wants to build a portfolio with the following four stocks. With the given details, find out his
portfolio return and portfolio variance. The investment is spread equally over the stocks.
Market return (Rm ) =11
Market return variance = 26
4. Mr. David is constructing a optimum portfolio. The market return forecast says that it would be 13.5
per cent for the next two years with the market variance of 10 per cent. The riskless rate of return is 5 per cent.
The following securities are under review. Find out the optimum portfolio.
Company a 2
SD
a
Anil 3.72 0.99 9.35
Avil 0.60 1.27 5.92
Bow 0.41 0.96 9.79
Viril -0.22 1.21 5.39
Billy 0.45 0.75 4.52

Portfolio Expected Return E(R) o
1 10 4
2 12 7
3 13 5
4 16 12
5 20 14






Company P Residual Variance
Sneha 0.17 0.93 45.15
Neha 2.48 1.37 132.25
Asha 1.47 1.73 196.28
Priya - 2.52 1.17 51.98
5. Vinoth received Rs. 10 lakh from his pension fund. He wants to invest in the stock market. The treasury
bill rate is 5% and the market return variance is 10. The following table gives the details regarding the expected
return, beta and residual variance of the individual security. What is the optimum portfolio assuming no short
sales?

6. The following table gives data on four stocks.
Stock Alpha Variance Systematic Unsystematic
A -.06 5 4
B .1 2 6
C .00 3 1
D -.14 3 2
The market is expected to have a 12 per cent return over a forward period with a return variance of 6 percent.
Calculate the expected return for a portfolio consisting of equal portion of stocks A, B, C and D.
7. Case: The market information regarding the following stocks is given in the table.

a) If the market index is expected to have a return of .20 and a variance of .20 which single stock would
the investor prefer to own from the risk and return point of view?
b) Interpret the ef value and the a value of RSE.

Security Expected Return Beta
d
A
r
15 1.0 30
B 12 1.5 20
C 11 2.0 40
D 8 0.8 10
E 9 1.0 20
F 14 1.5 10
Stock a P
ABC -.05 + 1.6 .04
RSE + .08 -0.3 .00
GIV .00 + 1.1 .10

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