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Module - 4 Problem On Portfolio Risk & Return-II

This document provides information and questions related to portfolio risk and return. It includes: 1) Questions calculating covariance, variance of a market portfolio, and beta values given return data. 2) Questions calculating beta, expected return, and required return for various securities given their standard deviations, correlations to the market, and market information. 3) Questions determining whether given portfolios are efficient based on their expected returns and risks compared to the risk-free rate and market portfolio. 4) Calculations of portfolio risk, return, and betas for portfolios consisting of different allocations to two securities.

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454 views

Module - 4 Problem On Portfolio Risk & Return-II

This document provides information and questions related to portfolio risk and return. It includes: 1) Questions calculating covariance, variance of a market portfolio, and beta values given return data. 2) Questions calculating beta, expected return, and required return for various securities given their standard deviations, correlations to the market, and market information. 3) Questions determining whether given portfolios are efficient based on their expected returns and risks compared to the risk-free rate and market portfolio. 4) Calculations of portfolio risk, return, and betas for portfolios consisting of different allocations to two securities.

Uploaded by

gaurav supade
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Programme: MBA Semester-III (CBCS- OUTCOME BASED)

Elective: Financial Management FM1: Investment Analysis & Portfolio Management


Module 4 : Portfolio Risk & Return- Part-II

1) From the following information calculate co-variance between X & Y,


variance of market portfolio and beta.
Year 2011 2012 2013 2014 2015
X (Return on market portfolio) 15 14 17 16 13
Y (Return on security) 16 12 19 18 19
2) Covariance of returns between market and equity shares of XYZ Ltd.
is 10%, market SD is 40%,RM is 20%, RF is 12% Calculate beta of
XYZ Ltd.
3) Security SD is 3%; Market SD is 2.205; co-efficeint of correlation for
security with market is 0.80;Return from market portfolio is 9.80%;
Risk Free rate of return is 5.20% .
4) The following portfolios are available to an investor:
Portfolio Expected Risk
Returns (𝜎)
X 14.0% 2%
Y 18.0% 5%
Z 30.5% 9%

Find out whether these portfolio are efficient or not given that the risk
free rate of interest is 8%.Return on the market portfolio is 18% and
the risk of the market portfolio is 4%.
5) Assuming r between returns from the two securities A & B to be -1.
Find the portfolio returns and portfolio SD using the following data:
Security A Security B
Mean return 12 16
SD 16 20
You my assume that the portfolio may consist of :-
a) 100% in A and 0 in B
b) 90% in A and 10% in B
c) 80% in A and 20% in B and so on……………
d) 0% in A and 100% in B

1
Programme: MBA Semester-III (CBCS- OUTCOME BASED)
Elective: Financial Management FM1: Investment Analysis & Portfolio Management
Module 4 : Portfolio Risk & Return- Part-II

Which of these portfolio is inefficient? How your answer will


change of (a)r = +1 (b) r=0 (c) r=+0.5 and (d)=0.50. Find out
whether these portfolio are efficient or not.
6) The following portfolios are available to an investor:
Particulars A B C D E F G H
Expected Return 10 13 14 16 18 19 19 20
SD 23 20 24 30 30 32 36 43
WHICH of the portfolio are efficient?
a) Suppose you can borrow and lend at 10% which of the portfolio
is the best?
b) You can’t borrow or lend. You want that the SD of you
investment should not be more than 29. What is the maximum
return you could expect?
You can borrow or lend 10% you want that the SD of you
investment should not be more than 28. What is the maximum
return you can expect?
7) Assuming r between returns from the two securities A & B to be -1.
Find the portfolio risk and portfolio SD using the following data:

Security A Security B
Mean return 12 16
SD 16 20
You my assume that the portfolio may consist of :-
a) 100% in A and 0 in B
b) 80% in A and 20% in B
c) 60% in A and 40% in B
d) 40% in A and 60% in B
e) 20% in A and 80% in B
f) 0% in A and 100% in B
Assuming that the risk free rate of return is 8%.
8) Calculate the market sensitivity index and the expected return o the
investment from the following data.
Standard deviation of an assets 2.5%

2
Programme: MBA Semester-III (CBCS- OUTCOME BASED)
Elective: Financial Management FM1: Investment Analysis & Portfolio Management
Module 4 : Portfolio Risk & Return- Part-II

Market standard deviation 2.0%


Risk free rate of return 13.0%
Expected return on the market portfolio 15.0%
Correlation coefficient of portfolio with market 0.8
What will be the expected return on the portfolio if portfolio beta is
0.5 and the risk free return is 10%

9) An investor is seeking the price to pay for a security, whose standard


deviation is 4%.Thr Correlation coefficient for the security with the
market is 0.9 and the market standard deviation is 3.2%.The return
from government securities is 6.2% and from the market portfolio is
10.8%.The investor know that by calculating the required return, he
can then determine the price to pay for the security. What is the
required return on the security?
10)Assume I RF =9% RM =18% if a security has a beta factor of (a) 1.4 (b)
1.0) (c) 2.3 Find out the expected return of the security.
11)Calculate the expected rate of return for security ‘S’ from the following
information I RF =9% RM =18% β=1.35
12)The standard deviation of return of security Y is 20 and of market
portfolio is 15. Calculate beta of Y if (a) CORYM =0.70 (b) CORYM =0.40
(c) CORYM =-0.25
13)Calculate the expected return on portfolio ‘A’ with the following data:
Risk free rate of return 8%
Expected return on market portfolio 12%
Market sensitivity index 0.75
14)An investor is seeking the price to pay for a security, whose standard
deviation is 3%.The Correlation coefficient for the security with the
market is 0.8 and the market standard deviation is 2.2%.The return
from government securities is 5.2% and from the market portfolio is
9.8%.The investor know that by calculating the required return, he
can then determine the price to pay for the security. What is the
required return on the security?

3
Programme: MBA Semester-III (CBCS- OUTCOME BASED)
Elective: Financial Management FM1: Investment Analysis & Portfolio Management
Module 4 : Portfolio Risk & Return- Part-II

15) The risk free interest rate is 8% and the expected return on the
market portfolio is 16%.Calculate the excepted return on the following
securities.
Security Beta
A 0.4
B 1.0
C 2.6
D 2.0
16)Calculate the Beta factor of the following investment. Is acceptance of
the investment worthwhile, based upon its level of risk free rate may
be taken at 6%.
Returns on
Probability
Market (M) Investment (S)
1/3 9% 6%
1/3 12% 30%
1/3 18% 18%
17) From the following data compute Beta of Security X. σX =12 ; σM =9
and CORXM =0.72
18) The expected return on the market portfolio and the risk free return
are estimate to be 13% and 9% respectively. ABC Ltd., has just paid a
dividend of Rs. 2 per share with annual growth rate of 7%.The
sensitivity Index β of ABC Ltd. Has bee found to be 1.2
(a) Find out price of the shares of ABC Ltd.,
(b) Examine the change in this price if
a. Risk premium further increase by 2%
b. Expected growth rate in dividends increase to 10%
c. Market sensitivity index of ABC Ltd., becomes 1.3
19)The following data relate to two securities A & B
A B
Expected return 22% 17%
Beta factor 1.5 0.7
20)Assume IRF = 10% & RM =18%. Find out whether the securities A & B
are correctly price?

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