What is the expected return on the mvp

Reference no: EM132072267

Question: You are responsible for managing a portfolio of two investments for the coming year. You have read all of the latest financial news and according to your favourite reputable financial analysts, the probability of another recession occurring is 30% and the probability of a boom is 20%; otherwise the economy will be behaving normally.

Shares of Firm A are expected to earn a return of 15% during boom times, but lose 10% during a recession. Normally, the firm's common shares would earn a 10% return. The price of Firm B's shares is expected to decline 10% during boom times, but increase by 15% during a recession. Normally the firm's common shares would also earn a 10% return.

Perform a financial analysis for the purpose of calculating your expected investment return. *Please show your work/provide the complete solution to the best of your ability for your answer*

a) Calculate the expected return on the shares of Firm A.

b) Calculate the expected return on the common shares of Firm B.

c) Calculate the expected return of a portfolio 30% invested in shares of Firm A and the remainder in shares of Firm B.

d) What is the standard deviation of expected returns for Firm A?

e) What is the standard deviation of expected returns for Firm B?

f) What is the standard deviation of expected returns for a portfolio 30% invested in shares of Firm A and the remainder in shares of Firm B?

g) Compare the return versus risk of a portfolio 100% invested in Firm A's shares with the return versus risk of the portfolio consisting of 30% invested in Firm A and 70% in Firm B. Which would you prefer? Why?

h) Find the Minimum Variance Portfolio (MVP) consisting of some combination of shares of both Firm A and Firm B. What proportion of the portfolio must be invested in Firm A's common shares and what proportion in those of firm B to achieve the MVP? (Use the "Solver" tool in Excel.)

i) What is the standard deviation of expected returns on the MVP?

j) What is the expected return on the MVP?

Reference no: EM132072267

Questions Cloud

How many ways can 15 entrees be randomly selected : For a menu that is being created you can place 15 options within it. There are 13 meat offerings and 8 non-meat offerings to choose from?

Summarize a biblical doctrine covered in theology : Summarize a biblical doctrine covered in Theology 202. Explain the biblical, historical, and theological contours of the biblical doctrine.

Calculate the expected return on the shares : Calculate the expected return on the shares of Firm A. Calculate the expected return of a portfolio 30% invested in shares of Firm A and the remainder in shares

Differences in the number of calories : Test to determine if there are significant differences in the number of calories at the two hamburger joints using a = 0.05.

What is the expected return on the mvp : You are responsible for managing a portfolio of two investments for the coming year. You have read all of the latest financial news.

What are the benefits of joining and networking : Would you join this organization? Is there anything on their website, such as an upcoming event, that you would consider attending?

Relationship between the expected return and beta is what : The equation of the SML which defines the relationship between the expected return and beta is the what?

Find the p-value and critical values : Assume that the significance level is a=0.01. Use the given statement and find the P-value and critical values.

What is the meaning of confidence interval : What is the meaning of confidence interval, error of estimate (margin of error) and critical value?

User Account

All Pages