Name: Cheong Yu Shuang

Matric No: 191221511

Assignment (Risk and Return)

1.

a) Calculate Expected Return for each of Financial Asset

r^ A = 0.2(12) + 0.5(14) + 0.3(16)

= 14.2%

r^ B = 0.2(6) + 0.5(14) + 0.3(19)

= 13.9%

b) Calculate Variance.

N
2
σ = ∑ (r− r^ ) Pi
2

i=1
2
σ A = ( 12−14.2 )2 (0.2) + ( 14−14.2 )2 (0.5) + ( 16−14.2 )2(0.3)
= 0.968 + 0.02 + 0.972
= 1.96%

σ 2B = ( 6−13.9 )2 (0.2) + ( 14−13.9 )2 (0.5) + ( 19−13.9 )2( 0.3)

= 12.482 + 0.005 + 7.803
= 20.29%

c) Calculate Standard Deviation.

σ = √σ2
 N
=
√∑ i=1
( r−^r )2 Pi

σA = √ 1.96 σB = √ 20.29
= 1.40% = 4.50%
2. Investment portfolio is made up of 50 per cent of financial assets A, 25 per cent of financial
assets B and the remaining 25 per cent of financial asset C.

a) Calculate Expected Return for each Financial Asset.

r^ A = 0.45(11) + 0.55(9)
= 9.90%

r^ B = 0.45(16) + 0.55(5)
= 9.95%

r^ C = 0.45(21) + 0.55(0)
= 9.45%

b) Calculate Expected Return for the portfolio of Financial Asset of A, B and C.

N
r^ P = ∑ wi r^ i
i=1

= 0.5(9.90) + 0.25(9.95) + 0.25(9.45)

= 9.80%

c) Calculate Variance.

σ 2A = ( 11−9.90 )2 (0.45) + ( 9−9.90 )2 (0.55)

= 0.99%
 σ 2B = ( 16−9.95 )2 (0.45) + 5−9.952 (0.55)
= 29.95%

σ 2C = (21−9.45¿ ¿ 2( 0.45) + ( 0−9.45 )2 (0.55)

= 109.15%
d) Calculate Standard Deviation.

σA = √ 0.99
= 0.99%

σB = √ 29.95
= 5.47%

σC = √ 109.15
= 10.45%

3. Bob has a $50,000 stock portfolio with a beta of 1.2, an expected return of 10.8%, and a
standard deviation of 25%. Becky also has a $50,000 portfolio, but it has a beta of 0.8, an
expected return of 9.2%, and a standard deviation that is also 25%. The correlation coefficient, r,
between Bob's and Becky's portfolios is zero. If Bob and Becky marry and combine their
portfolios, which of the following best describes their combined $100,000 portfolio?

a) Portfolio’s beta?

Portfolio beta= (0.5 × 1.2) + (0.5× 0.8)

=1

b) Expected return?
r^ p = 0.5(10.8) + 0.5(9.2)

= 10%

c) Standard deviation?
σ p = √ σ2p
N
=
√∑
i=1
( r−^r p )2 Pi

= √ ( 0−10.8 )2 ( 0.5 )2 + ( 0−9.2 )2 ( 0.5 )2

= √ 50.30045
= 7.09