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

Genital and reproductive function, Genital and Reproductive Function: ...

Genital and Reproductive Function: J.Y. is a 43-year-old woman who has detected a lump in the upper outer quadrant of her left breast while performing her monthly self-breast

Explain the disadvantages of ifrs 8, Disadvantages of IFRS 8 Recon...

Disadvantages of IFRS 8 Reconciliations may be time consuming. Less comparable with other organisations, as every entity has a different way of running their business.

Internal rate of return, Internal Rate of Retur n The discount ...

Internal Rate of Retur n The discount rate at which the net current value (the value of all future cash flows, in excess of the real investment, expressed  in today's d

Harmonisation of accounting standards, Harmonisation of Accounting Standard...

Harmonisation of Accounting Standards Recognising the required for international harmonisation of accounting standards, in year 1973, the International Accounting Standards Co

Equity claims and debt instruments in financial securities, What is the dif...

What is the different between equity claims and debt instruments in financial securities? By getting conclusion about equity claims and debt instruments, that equity claims are

zero salvage value, Big Joe's is changing a piece of equipment.  The equip...

Big Joe's is changing a piece of equipment.  The equipment will cost $5,000 and has a 5 year life.  The equipment can be leased for annual payment of $1,295 paid at the starting of

Weighted average cost of capital, Weighted Average Cost of Capital Wei...

Weighted Average Cost of Capital Weighted average cost of capital is the average cost of the costs of several sources of financing. Weighted average cost of capital is also kn

Determine the rate for computer-based central office switch, SWBT Company m...

SWBT Company must decide whether to repair a telephone company computer-based central office switch or purchase a new one. The existing switch originally cost $750,000 and is fully

Enumerate the securities and investment analysis, Enumerate the Securities ...

Enumerate the Securities and Investment Analysis Purchase of bonds, stocks and othersecurities involve analysis and techniques which are highly specialized. An investorshoul

Determine the value of the forward contract, Mr. Lam holds title to an asse...

Mr. Lam holds title to an asset worth €125.72. In order to raise money for an unrelated purpose, he plans to sell the asset in nine months. But Mr. Lam is concerned about the uncer

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