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

Equilibrium of an exchange economy, The economy consists of two consumers, ...

The economy consists of two consumers, A and B. Both consumers are endowed with one unit of good 1 and one unit of good 2. Consumer A is entirely indi?erent between all consumption

Absolute performance standard, Absolute Performance Standard is a method of...

Absolute Performance Standard is a method of measuring an organization's development and how effective and efficient it is at operating its business. The absolute performance stand

Historical look at the treasury yield curve, The minimum interest rate ...

The minimum interest rate which investors demand for non-treasury securities is represented by the yield offered on the treasury securities. This is why market particip

Explain process of financial control, Financial Control: - The establishmen...

Financial Control: - The establishment as well as use of financial control devices is an important function of financial management. These devices comprise: Budgetary Contro

Limitations of budgetary control, LIMITATIONS OF BUDGETARY CONTROL 1. I...

LIMITATIONS OF BUDGETARY CONTROL 1. It involves predicting the future which is not certain. 2. Market is continuously and dynamically evolving.  Hence budgets based on past

Calculate the net present value, Tri-City Industries is considering two pos...

Tri-City Industries is considering two possible capital projects. Project A requires an initial investment of $240,000 and provides cash flows before tax of $120,000 in year one, $

Accrued income, Income that is received in a fund or by company by providin...

Income that is received in a fund or by company by providing a service or selling a product, but still has to be received. Mutual funds or other pooled assets that build up income

Financial ratio , Ratio Calculation:   A 'Financial Ratio' is an ind...

Ratio Calculation:   A 'Financial Ratio' is an index that relates two accounting numbers and is obtained by dividing one number by the other. Various Ratios are - 1. L

Simple average of the outcomes - time constraint, 1. Your welfare depends o...

1. Your welfare depends on how much time you travel T and how much time you play P and is the product of the two, i.e.,  W = T * P (a) The total amount of time you have is 10 ho

What is a fair price for a share, Sega Inc. expects earnings/dividends to g...

Sega Inc. expects earnings/dividends to grow at an annual rate of 30 percent for the next 4 years. After that they feel that the market will get saturated and the growth rate will

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