Determine the expected return of the portfolio

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Reference no: EM133075118

Capital Venture Fund has set up a portfolio that comprises ABC shares and XYZ shares. The following information relates to these shares.

 

ABC

XYZ

Expected return

10%

25%

Standard Deviation of return

15%

35%

Correlation of coefficient 

0.4

Required:

a) Determine the expected return of the portfolio if 75% of ABC shares and 25% of XYZ shares are combined to form the portfolio. 

b) Determine the risk of the portfolio by calculating portfolio standard deviation given the same portfolio combination. 

c) Using CAPM, calculate beta coefficient of ABC shares, given the risk premium of 7.5% and risk free rate of 3.5%. 

d) For 4 previous consecutive years, the portfolio has the rate of returns of 12%, -4%, 13% and 14%, calculate the geometric average rate of return of this portfolio for the period. 

Reference no: EM133075118

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