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Rules To Be Followed:: Security Analysis & Portfolio Management Course Code: Fin-458

This document contains an 8 question assignment on security analysis and portfolio management. Students are instructed to follow the methods and assumptions used in lectures, hand write their assignments, and submit them by March 5th in class. The questions calculate measures like expected return, standard deviation, and covariance for various stock portfolios and assess the risk-return profile of portfolios under different conditions.

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109 views4 pages

Rules To Be Followed:: Security Analysis & Portfolio Management Course Code: Fin-458

This document contains an 8 question assignment on security analysis and portfolio management. Students are instructed to follow the methods and assumptions used in lectures, hand write their assignments, and submit them by March 5th in class. The questions calculate measures like expected return, standard deviation, and covariance for various stock portfolios and assess the risk-return profile of portfolios under different conditions.

Uploaded by

muqadads zubair
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Security Analysis & Portfolio Management

Course code: Fin-458


Rules to be followed:
Methods and assumptions used during lectures will be followed only.
The assignment must be hand written on assignment papers. Avoid copy paste.
Due date for assignment submission is 5th March.
Bring your assignment in class on 5th March Thursday. No assignment will be accepted after
class timing.
Question # 1
This problem will give you some practice calculating measures of prospective portfolio
performance. There are two assets and three states of the economy:
Rate of Return if State Occurs
State of Economy Probability of State Stock A Stock B
of Economy
Recession .20 -.15 .20
Normal .50 .20 .30
Boom .30 .60 .40

What are the expected returns and standard deviations for these two stocks?
Using the information in the previous problem, suppose you have $20,000 total. If you put
$15,000 in Stock A and the remainder in Stock B, what will be the expected return and standard
deviation of your portfolio?
Question # 2
Based on the following information, calculate the expected return:
State of Economy Probability of State Rate of Return if
of Economy State Occurs
Recession .20 -.05
Normal .50 .12
Boom .30 .25

Question # 3
Based on the following information, calculate the expected return and standard deviation for
these two stocks:
State of Probability of Stock A Stock B
Economy State of
Economy
Recession .15 .05 -.17
Normal .65 .08 .12
Boom .20 .13 .29
Question # 4
A portfolio is invested 25 percent in Stock G, 55 percent in Stock J, and 20 percent in Stock K.
The expected returns on these stocks are 8 percent, 15 percent, and 24 percent, respectively.
What is the portfolio’s expected return? How do you interpret your answer?
Question # 5
Consider the following information:
Rate of Return if State Occurs
State of Probability of Stock A Stock B Stock C
Economy State of
Economy
Boom .15 .45 .35 .05
Good .30 .12 .01 .06
Poor .45 .10 .15 .30
Bust .33 .15 .05 .09

a. Your portfolio is invested 30 percent each in A and C, and 40 percent in B. What is the
expected return of the portfolio?
b. What is the variance of this portfolio? The standard deviation? Also calculate the covariance
and correlation coefficient.
Question # 6
Expected return of security 1 is 12%. Expected return of security 2 is 16%. Whereas expected standard
deviation for security 1 is 4% while expected standard deviation for security 2 is 6%. Calculate the
expected return and expected S.D of a two stock portfolio having a Correlation Coefficient of 0.07 under
the following conditions

a) If weight of security is 1.00.


b) If weight of security is 0.75.
c) If weight of security is 0.05.
d) If weight of security is 0.25.

Question # 7

Assume that the nominal return on U.S. government T-bills was 10% during 20X2, when the rate of
inflation was 6%. What would be the real risk-free rate of return on these T-bills?
Question # 8

Consider the following information relating to two assets:

E (R 1) = 0.3

E (R 2) = 0.3

E (S.D1) = 0.2

E (S.D2) = 0.2

The weights of each asset in the portfolio are:

W 1 = 0.5

W 2 = 0.5

The correlation coefficient is r1, 2 = 1.00

Calculate the covariance of the portfolio.

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