Estimate the betas for blandy and gourmange companies

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Reference no: EM131858870

Problem 1- Table below shows the historical returns for Companies A, B and C

Year	Company A	Company B	Company C
1	30%	26%	47%
2	7%	15%	-54%
3	18%	-14%	15%
4	-22%	-15%	7%
5	-14%	2%	-28%
6	10%	-18%	40%
7	26%	42%	17%
8	-10%	30%	-23%
9	-3%	-32%	-4%
10	38%	28%	75%

Estimate the average return and standard deviation of each company.
Estimate the correlations between Company A and B, A and C, as well as B and C.

Problem 2

Table below shows the historical returns for Companies A, B and C

Year	Company A	Company B	Company C
1	30%	26%	47%
2	7%	15%	-54%
3	18%	-14%	15%
4	-22%	-15%	7%
5	-14%	2%	-28%
6	10%	-18%	40%
7	26%	42%	17%
8	-10%	30%	-23%
9	-3%	-32%	-4%
10	38%	28%	75%

1. If one investor has a portfolio consisting of 50% Company A and 50% Company B, what are the average portfolio return and standard deviation? What is Sharpe ratio if the risk- free rate is 3.8%?

2. If another investor has a portfolio consisting of 1/3 Company A, 1/3 Company B and 1/3 Company C, what are the average portfolio return and standard deviation? What is Sharpe ratio if the risk-free rate is 3.8%?

Problem 3

What would happen to the portfolio risk if more and more randomly selected stocks were added?

Problem 4

You currently have $300,000. You want to invest it in the following three assets: 10-year US Treasury bond with coupon rate 3.8%, Blandy and Gourmange stocks below:

Year	Blandy	Gourmange

Average annual return	6.4%	9.2%
Standard deviation of annual return	25.2%	38.6%

Correlation between Blandy and Gourmange	0.11

Your goal is to have the expected return of 6.8% with a minimum portfolio risk. How much money should you allocate to these three assets?

Problem 5

Given the following information:

Year	Market	Blandy	Gourmange
1	30%	26%	47%
2	7%	15%	-54%
3	18%	-14%	15%
4	-22%	-15%	7%
5	-14%	2%	-28%
6	10%	-18%	40%
7	26%	42%	17%
8	-10%	30%	-23%
9	-3%	-32%	-4%
10	38%	28%	75%

Estimate the betas for Blandy and Gourmange companies?
If you have a portfolio of 25% Blandy and 75% Gourmange, what is the beta for your portfolio?

Problem 6

Based on the Capital Asset Pricing Model (CAPM) and the diagram below, what is the return of the stock if its beta is 1.2 or 0.8?

2003_Q6 Graph.jpg

Reference no: EM131858870

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