Assignment om Risk and Return (Meriil Finch Tne.) : Department of Finance and Banking Financial Management Course Code :FNB 204 submitted to Nilanjon Kumay saha Associate ProfessoyY Dept. of Finance % Banking submitted by Md. BodiuzzZaman. ID no 3 1660 doth Batch Dept- of Finance Bankingfree yelur ae Twill return dozsnot depend ae because the treasury Bile. 217. the state of eceonoma” eet eed tne wile oF pen regardless of Peete of tHe £TONOM Rt he t-bills are risk-free im the default risk sense veeause the 8.067. veturns will be galized im all possible 2tonome States. It’s Bos, F : esr t provide a covnpletely yisk free yeh Bbgre 16 Still Wslaton ice eee terms of reinvestmentaa High Techs = -ye2turns expected to wee with the 2eonoma where coplertions axe expe ted an | ‘ 2 Pe counter fo the Pee the “icms, Soaked and hence prea | will generaltd axperiente the same type 63 ups Popeeeceens «ob the €epnorng « Sep nnyee The standard deviation is a measuved a a securities stand aloe isk. The tongey the standatd deviation, the higher the probability that 4 actual realized veturns will fall fay belour expected return, and ina Loses rather 4nq I 2 ineurved -coxfficient of vaviaton Cv) is & sandoxdiz e ° hous the amount of vISK pet unit of yeburr- = oc SV wighTech = 2° = 1.45 ata w 5 ees Collections = 22:22 — 3. 1.94 etwith is tow expected yeturn , be. 1s a vettex Mea: ee nee risky stock. Te alone isk than ¢ Beeenees ce of an asets stand eonsidzy both the expected value and the dispensicn of a distributions 9 security uth a Low expected rebar and a hour standard deviation epuld have a higher ehance of a doss than one 6 but a High Gy usith o ANsurey 2 E.1 ‘To find the expected vote of return oneee SK) = (0.5 x14, = BP +OSH = 9.551 5) + (0-4x1 D Portfolio standayd deviahon = . Bp = [B-2.55)%xo + (GB 9-5R) X02 + (0-9-5h)Y%% 0.4 + 12.5 =9.55)"K0.2. + (15—9.5 5 real Ag [4:29 + 2107 40.08 44.94 + 2-9%) ay, (44.13) . 3,340 /Nene co ar ae ene stom lene e Rye, strand. ol orice ~rigkk of the portfolio 15 he stand alone visk of the a MeLASUTL 5 signifi cantly tess than 1 Andividual visk- SF combining the hue stocks diversities ausasy some of the visk inherent 19 each stock if it weve held in isolation This 16 because the fito stock ave negatively correlated. with Aigh tech ts doing poovlg collections is doing viel and vice versa. real world , stocks ave posi ivelyaverage have a standard deviation of yoeKs ave added to the fort folio additional » 6 becouse the folio standayd deviation decrease port added stoeks ayenot perfectly positive cee Heitiaye, a5 move and move Sich ave added Palen nsw stock Nas 1295. at o wisk vedu cing inpeet and eventually adding collected stocks *has virtually mo effects on the portfolio yvigk as measured by o. Ansurey 3 Gi Portfolio diversification dows effect 5 Investovs vbe Baur ofa ys that the visk shoul eve id be a different IYPe of TISKS. 2 velevont. ese of ¥ISk 2 stock po e@ mor: investor would hold a multipl the bela of the visk. Ansurt2y 2 G2 Tf I hold the ome stock portfolio jt usill be exposed fo a Nigh degvee of visk but T utom? t compen sated for it. If the veturn were High enough to pensate for my Mah risk, it would be a ee te gare fox move vation al y diver sified Investorsasset represent the Pe coeqmucient oon cy perceived ymovern ent ‘ ane other usosds , bet Pe en to the marker vetuyns. in qwaefficient 1s @ measure of Pow tine eucclas vetumn aan as change in vélation te the mayker Tr tan be $! a multiplies, For example > if The stock has a beta coefficient of t+ then the asset will move exact x the same as the market. If the market Yelwrns increased Oxy Ah the return of the asset 4s ex f pecte to inereage bq also 1%. - if On the other Rand 5 if the cock Ras ab 5 a beta wertelated 1o bora te Aigh ev breast 12 divecth”y the higher the expect yurns and this Aas the market visk, ed vetuyn< High tech nas the wighest Ve highest De eaten one Moe ete thats aie have Zero YISk- meu ee no 3 1:3 Th ie not yer possible to chase among alfer oe : Natives, sincere wte donot Nave information oF th 2 yequrred yeturns of : ‘ of the assets with the given eon era. This is needed 10 be compayed +0 the expected : ched xetuyns Bee of the assets. 5 eet Wequiyve d seturn ox - i ceads expeciy fag Geet) cic ae Market Stop Bee TE Bills =O (mo manag isk) ieamse nt 2. 1 Security maxket line equahon Ks = Kee + (Km—Kpp) be = Requived veturn of Stock, = Risk free vateGenmates the 2k Nise 45f + estimate of Km lie alternatives ave given pelout. Map ec) = o7. (un 8) Oe ee Saeed Mavyker = $7. + B57 =i) eo (ice = oy Utd (87) "OS? eee Teele = Oh + AP he 81). 0 Cie collection = 37% + (151,-81-) 08h = oe Answer noir-2 pales ee NO iE «2 ite “Requived Soeurities Expected See ( Kate ee Tech At 4 RSE Apes Asms is an interesting grec Ae cates nogative market vee nauding te ia port folto of normal shocks will lowed Me port Fol vigk: $0, 1195 sequived vate of ¥Yetuyn 4¢ below the Dee free veturn $0 W'S valuable for rational usell investors. On the othey ond, a ome diversified yigk free yerurns:not. High FOO consisting of i id be Rubber the ~aquive Yate uso Soa pos (12) + 5 (0-69) ey}. * Aer — SH As ao) ae a B oS W Ansusey nos da If inflation expections inevease by 3 per centage pomts uiith no ehange in visk avevsion , then the entire SMI is shifted upward (Pavalled to base SME) qd > peveentage points. Now _— 1 ma1eLand all seeuvities equi ae > pereentage poms .ae ee ayestors isk aversion Inexease ee upuserd about yo inter ceph jum jmerveaces ae 4 - oo dhe market visk PYem™M