Scribd
Upload
131 views4 pages

Portfolio Management (Assignment)

This document contains the answers to two portfolio management questions. [1] The first question calculates the mean return, standard deviation, covariance, correlation, beta, and regression equation for two assets, A and B, based on their historical returns over three years. [2] The second question calculates the standard deviation of a portfolio that is 30% invested in stocks with a 20% standard deviation and 70% invested in bonds with a 12% standard deviation, for a given stock-bond correlation of 0.6. It also calculates the portfolio standard deviation if the stock-bond correlation was perfectly positive 1.

Uploaded by

Isha Aggarwal
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
131 views4 pages

Portfolio Management (Assignment)

This document contains the answers to two portfolio management questions. [1] The first question calculates the mean return, standard deviation, covariance, correlation, beta, and regression equation for two assets, A and B, based on their historical returns over three years. [2] The second question calculates the standard deviation of a portfolio that is 30% invested in stocks with a 20% standard deviation and 70% invested in bonds with a 12% standard deviation, for a given stock-bond correlation of 0.6. It also calculates the portfolio standard deviation if the stock-bond correlation was perfectly positive 1.

Uploaded by

Isha Aggarwal
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
You are on page 1/ 4

2023

PORTFOLIO MANAGEMENT
ASSIGNMENT-1

Isha Aggarwal
2022-2305-0001-0001
3/15/2023
Questions 1 ( 6 marks)

Given three years of percentage returns for assets A and B in the following table, calculate the mean
return and sample standard deviation for each asset, the sample covariance, and the correlation of
returns.

Answer:

The Mean return of Asset A (X̄) =5+(-2)+12/3

=5

The Mean return of Asset B (ȳ ) =7+(-4)+18/3

=7
By calculating this question through BA Financial calculator we got
Standard Deviation of A(σ) =5.7155
Standard Deviation of B (σ) =8.9815
a -0.8571
b 1.5741
r 1.0000

Co-variance=r*sd(x)*sd(y)
=1.0000*5.7155*8.9815
=51.3333

Beta(β) = Co-variance(X,Y) / Variance of X

=51.3333 / (5.7155)^2

= 1.5714

Y= a+bx

= -0.8571+1.5741*5
= 7.0013~7

Hence Proved….!

Question 2 : ( 4 marks)

A portfolio is 30% invested in stocks that have a standard deviation of returns of 20% and is 70%
invested in bonds that have a standard deviation of returns of 12%. The correlation of bond returns with
stock returns is 0.60. What is the standard deviation of portfolio returns? What would it be if stock and
bond returns were perfectly positively correlated?

Answer: Given,
Stocks Bonds

Weightage 30% 70%

Standard 20% 12%


Deviation
When,
Co-relation (r)= 0.60
Standard Deviation of Portfolio = [(w1*sd1)^2+(w2*sd2)^2+2*w1*w2*sd1*sd2*r]^1/2
= [(.30*.20)^2+(.70*.12)^2+2*.30*.70*.20*.12*0.60]^1/2
= [0.0036+0.007056+0.006048]^1/2
= [0.016704]^1/2
= 0.129243*100
= 12.92%
When,
Co-relation (r)= 1

Standard Deviation of Portfolio = [(w1*sd1)^2+(w2*sd2)^2+2*w1*w2*sd1*sd2*r]^1/2


= [(.30*.20)^2+(.70*.12)^2+2*.30*.70*.20*.12*1]^1/2
= [0.0036+0.007056+0.0101]^1/2
= [0.020756]^1/2
= 0.1441*100
= 14.41%

You might also like