Calculate the standard deviation , Financial Management

Assignment Help:

The attached file (MFR & FFM Ass Returns Data.xls) gives 132 months returns for thirty securities drawn from the FT ALL share index as well as the returns on the FT ALL share index

a)   Choose any ten securities at random and form an equally weighted portfolio of these securities

i.  Choose any five securities at random and determine the average returns for each company for the 132 months along with the variance and standard deviation of these returns. Next construct an equally weighted portfolio made up of the five securities, and determine the series of monthly returns. On this basis determine the average return for the portfolio and the associated variance and standard deviation.  The averages, variances, and standard deviations can be derived using the relevant Excel functions. Utilise the Excel specification for population variance and standard deviation - STDEVP and VARP - in the calculations. Explain the discuss the relationship between the average returns, average variance, and average standard deviation for the five securities and the average returns, variance, and standard deviation for the portfolio.

ii.  Calculate the co-variances for each pair of securities in the portfolio and on the basis of this information, and using the relevant portfolio equations, calculate the standard deviation of the returns on the portfolio.  Compare your results to those obtained for the portfolio in part i above. Comment and explain your findings.

b)  Choosing securities at random form equally weighted portfolios of 2, 5, 10, 15 and 20 securities determine the standard deviation of these portfolios and plot the standard deviations against the number of securities in the portfolios.  Comment on your results and compare these with the results of the studies of naïve diversification. (In undertaking this analysis you can derive the results for each of the portfolios using the Excel spreadsheet - there is no need to employ the portfolio equations and estimates of co-variances etc.                                                                           

c)   i.   Determine the beta of one security by regressing the returns for the share on the returns for the FT ALL Share Index (the last column in the spreadsheet).  Comment on what the value of the beta (the slope coefficients in the regression) indicates.

ii.  Discuss the primary determinants of a share's beta.  (This part of the questions relates to betas in general and does not require you to focus on the company analysed in part (i)


Related Discussions:- Calculate the standard deviation

Explain how management goals are incorporated into pro forma, Explain how m...

Explain how management goals are incorporated into pro forma financial statements. Management locates a target goal, and forecasters produce pro forma financial statements within

Explain common methods for controlling translation exposure, It is, usually...

It is, usually, not possible to totally eliminate both translation exposure and transaction exposure.  In few cases, the elimination of one exposure will as well eliminate the othe

Straight line depreciation, Alger Corp wants to buy some construction equip...

Alger Corp wants to buy some construction equipment for $50,000, which has a useful life of 4 years with no salvage value. Alger uses straight-line depreciation. Alger has a tax ra

Sensex, What is Financial index & commodity index? Method of index uses in ...

What is Financial index & commodity index? Method of index uses in calculation? Weighted average method? How to calculate index?

Homework, Assume Main Street Store’s Net Sales in 2010 were $1,000,000 and ...

Assume Main Street Store’s Net Sales in 2010 were $1,000,000 and it’s Net Income in 2010 was $17,000. Thus, between 2010 and 2011 Main Street Store’s net sales increased 20%. Durin

Maturity profile, Maturity Profile Even though there is no ideal theory...

Maturity Profile Even though there is no ideal theory/concept of the maturity of the instruments, some important issues that should be considered while balancing the long-term

What is accumulated depreciation, Q. What is Accumulated Depreciation? ...

Q. What is Accumulated Depreciation? Accumulated Depreciation - Total DEPRECIATION pertaining to an ASSET or group of assetsfrom the time the assets were placed in services unt

Callability, It is a feature that allows the issuer to redeem its bon...

It is a feature that allows the issuer to redeem its bonds before maturity. Almost all convertible bonds come with this feature. Due to this feature, bonds carry

Explain dual currency bond, Explain Dual Currency Bond A dual currency ...

Explain Dual Currency Bond A dual currency bond is a straight fixed-rate bond that is issued in one currency and pays coupon interest in that similar currency.  At maturity, th

Explain the significance of the term additional funds needed, Explain the s...

Explain the significance of the term additional funds needed . When the pro forma balance sheet is finished, total liabilities and total assets and equity will rarely match.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd