Kazakh-British Technical University | Business School

Discipline: “Financial Risk Management”

Semester: Spring 2023
Homework 2

Student name:_________________________________
ID:______________________________________________

1. You have been researching an emerging market company and you decided to use APT
model to estimate the portfolio return. You noticed that the inflation that was predicted
by economists was equal to 0.4%, however actual inflation turned to be 0.5%. Actual GDP
growth was 2.95% while analyst predicted consensus were equal to 2.90%. You, as a
portfolio manager, analyzing 2 portfolios – Company Triple A Inc. and Mazaros B Inc. You
came up with the following equations that help to understand the return.

R (Triple A) = 0.08 – 1*F(infl) + 1*F(GDP) + error term (Triple A)

R (Mazaros B) = 0.11 + 2*F(infl) + 4*F(GDP) + error term (Mazaros B)

0.33% of capital is invested in Triple A, while 0.77 in Mazaros B.

Question 1: Write equation for the entire portfolio.

Question 2: Calculate expected return for the portfolio

Question 3: Calculate the return on the portfolio

 2. Aziz purchases shares of a company for KZT 144.16 on 22 December 2022 with the
intent of holding them for a year. The dividend rate was KZT 4.22 per year. Aziz actually
sells the shares on 6 January 2023 for KZT 139.04. Aziz points the following details:
 Dividends were not paid between 22 Dec and 6 Jan.
 The required return was 8.7% on an annual basis and 0.161% on a weekly basis.

Question 1: Given that the stocks purchased by Aziz was priced fairly, calculate the price
appreciation return (capital gains yield) anticipated by Aziz given his initial expectations and
initial expected holding period.

Question 2: Calculate the investor’s realized return.

Question 3: Calculate the realized alpha.

3. The only risk that should be priced is______________________________________________

4. Why I sould not invest in portfolios that are below efficient frontier.