Fund. Of Inv.

201512

TUTORIAL: MODERN PORTFOLIO CONCEPT

1. You have been given the following return data on 3 assets F,G and H over the period of
2012 -2015.

Year
2012
2013
2014
2015

Asset F
16
17
18
19

Expected return
Asset G
17
16
15
14

Asset H
14
15
16
17

Using these assets, you have isolated three investment alternatives:

Alternative
1
2
3

Investment
100% of asset F
50% of asset F and 50% of asset G
50% of asset F and 50% of asset H

a) Calculate the portfolio return over the four year period of each of the three alternatives.
b) Calculate the standard deviation of returns over the four year period for each of the three
alternatives.
c) On the basis of findings in part a and b, which of the three investment alternatives would
you recommend? Why?
2. Assume the betas for securities A,B and C are shown here:
Security
A
B
C

Beta
1.40
0.80
-0.90

a) Calculate the change in return for each security if the market experiences an increase in its
rate of return of 13.2% over the next period.
b) Calculate the change in return for each security if the market experiences a decrease in its
rate of return of 10.8% over the next period.
c) Rank and discuss the relative risk of each security on the basis of your findings. Which
security might perform best during economic downturn? Explain.
d) Assume you have a portfolio with RM20,000 invested of each investment A,B and C.
Determine your portfolio beta.

APU Level 2

201512