Calculate expected return and standard deviation

Reference no: EM1361889

Jane is considering investing in three different stocks or creating three distinct two-stock portfolios. Jane considers herself to be a rather conservative investor. She is able to obtain forecasted returns for the three securities for the years 2007 through 2013. The data are as follows:

Year Stock A Stock B Stock C
2007 10% 10% 12%
2008 13 11 14
2009 15 8 10
2010 14 12 11
2011 16 10 9
2012 14 15 9
2013 12 15 10

In any of the possible two-stock scenarios, the weight of each stock in the portfolio will be 50%. The three possible portfolio combinations are AB, AC, and BC.

To Do:
Create a spreadsheet similar to Tables 5.7 or 5.8.
Table 5.7 (example)
A. Expected Portfolio Returns

Forecasted Returns
Year Asset X Asset Y Portfol. Return Calc. Expec. Port Fol. Return (Kp)
2007 8% 16% (.50 x 8%) + .(.50 x 16%) = 12%
2008 10 14 (.50 x 10%) + .50 x 14%) = 12%
Etc.

B. Expected Value of Portfolio, 2007-2001
Kp + 12% +12% + 12% + 12% + 12%/5

C. Standard Deviation of expected portfolio returns
Okp = (12% - 12%)squared + 12% -12% squared , etc./5-1
= standard deviation of 0% + 0%, etc/4
= 0 in this case.

Table 5.8 (example)
Lists

Assets Portfolios
Year X Y Z XYa(50%X + 50% Y) XZb (50% X+50% Z)
2007 8% 16% 8% 12% 8%
2008 10 14 10 12 10
Etc.

Statistics:
Expected Value: 12% 12% 12% 12% 12%
Standard Deviation: 3.16% 3.16% 3.16 0% 3.16%

A. Calculate the expected return for each individual stock
B. Calculate the standard deviation for each individual stock.
C. Calculate the expected returns for portfolio AB, AC, and BC
D. Calculate the standard deviations for portfolios AB, AC, and BC.
E. Would you recommend that Jane invest in the single stock A or portfolio consisting of stocks A and B? Explain your answer from a risk-return viewpoint.
F. Would you recommend that Jane invest in the single stock B or the portfolio consisting of stocks B and C? Explain your answer from a risk-return viewpoint.

Reference no: EM1361889

Questions Cloud

Find the normal force exerted on the crate by the elevator : Find out the normal force exerted on the crate by the elevator.

Explain what laws and concepts are covered : Explain What laws and concepts are covered that would help you in the area of benefits

Physical fitness training program : Describe potential issues that might be involved with developing a wellness and physical fitness training program.

Brainstorming skills to determine procedure to follow : The lead investigator gives you these graphics files and tells you that at least four messages should be embedded in them. Use your problem solving and brainstorming skills to determine a procedure to follow.

Calculate expected return and standard deviation : Jane is planning investing in three different stocks or creating three distinct two-stock portfolios. Jane considers herself to be a rather conservative investor.

What is the attractive force between the protons : What is the attractive force between the protons. A rocket rises vertically, from rest, with the acceleration of 3.0 m/s2 until it runs out of fuel at an altitude of 1100 m. After this point, its acceleration is that of gravity, downward.

Type of squats and contrast : Choose two different type of squats and contrast the muscles worked. In other words, choose two different mechanics variations and tell us how they work the same muscles a little bit differently.

Explain when a company is contemplating establishing : Explain When a company is contemplating establishing an international presence, what factors may determine whether to operate as a centralized

Design analgorithm that decides for each node : Design an O(n) algorithm that decides (schedules) for each node at which time slot to start sending data such that the total number of time (slots) is minimized.

User Account

All Pages