MUNHUMUTAPA SCHOOL OF COMMERCE

DEPARTMENT OF ACCOUNTING AND INFORMATION SYSTEMS

Bachelor of Commerce Honours/Special Honours Degree in Accounting – level 4.1 Jan-

Jun 2023

HACC414/HSPAC414 Investment analysis and Portfolio Management

Individual Assignment:
QUESTION:

(a) Explain how the avoidance of cognitive dissonance can affect the investor’s decision
making process. [6 marks]
(b) Consider the following data for a particular sample period when returns were high.

Portfolio A Market M
Average return 35% 28%
Beta 1.2 1
Standard deviation 42% 30%

Required
Calculate the three performance measures (sharpe, Jensen or alpha, and Treyner’s
ratios) for portfolio A and the market. The Treasury bill rate during the period was
6%. By which measures did portfolio A outperform the market? [9
marks]

(c) An investor holds a portfolio which is expected to yield a rate of return of 18% with a
standard deviation of 2.5%. The investor is considering buying a new share
(investment being 5% of the total investment in the new portfolio). The share has the
following distribution of return:

RETURN PROBABILITIES
40% 0.30
30% 0.40
-10% 0.30
The correction coefficient between the new portfolio and the new security is 0.3; calculate the
portfolio return and standard deviation of the portfolio. [10 marks]

(d) Draw the profit/ loss graph for the following option strategies:

i) Buy a put with 3 USD premium and 70 USD exercise price;

ii) Write a call with 2 USD premium and 50 USD exercise price. [5 marks]
TOTAL: 30 MARKS

Due date: 29 April 2023