08/11/20

KOLEHIYO NG LUNGSOD NG LIPA

Maraouy, Lipa City

Return

Investment and Portfolio Management

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 08/11/20
KOLEHIYO NG LUNGSOD NG LIPA
Maraouy, Lipa City

1. To introduce the concept of Return and Risk;

2. To explain the formula of return computation
by giving examples
3. To allow student to practice work out problems
4. To

Investment and Portfolio Management

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 08/11/20
KOLEHIYO NG LUNGSOD NG LIPA
Maraouy, Lipa City

Portfolio Proportion
- use the quantity held of each asset to
determine the initial and final portfolio
values

Investment and Portfolio Management

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 08/11/20
KOLEHIYO NG LUNGSOD NG LIPA
Maraouy, Lipa City

Investment and Portfolio Management

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 08/11/20
KOLEHIYO NG LUNGSOD NG LIPA
Maraouy, Lipa City
Example
Consider assets A, B, and C with returns
3 2 1 23 1 2 1
rA   , rB    , rC  1
2 2 3 3 1
The initial proportions in the portfolio are
200 600 150
XA  , XB  , XC 
950 950 950
The return on the portfolio is
200  1  600  1  150
r      1  0.052 (5.2%)
950  2  950  3  950

Investment and Portfolio Management

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 08/11/20
KOLEHIYO NG LUNGSOD NG LIPA
Maraouy, Lipa City

Proportions must be recomputed at the start of each of

the holding periods.

The initial value of the portfolio is

V0 = 100x10 + 200x8 = 2600
The portfolio proportions are
1000 5 1600 8
X A  0   , X B  0  
2600 13 2600 13

Investment and Portfolio Management

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 08/11/20
KOLEHIYO NG LUNGSOD NG LIPA
Maraouy, Lipa City

The portfolio return over the first year is

5 15  10 8 9  8
r 
13 10 13 8
 0.269 (27%)
At the start of the second year the value of the
portfolio is
V1 =100x15 + 200x9 = 3300
This gives the new portfolio proportions as
1500 5 1800 6
X A 1   , X B 1  
3300 11 3300 11

Investment and Portfolio Management

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 08/11/20
KOLEHIYO NG LUNGSOD NG LIPA
Maraouy, Lipa City

The return over the second period can be

calculated to be
5 12  15 6 11  9
r  
11 15 11 9
 0.03 (3%)

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