Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Lisa is a graduate student from Holmes Institute who is actively involved in investment in the securities market. She had established one investment portfolio 5

Lisa is a graduate student from Holmes Institute who is actively involved in investment in the securities market. She had established one investment portfolio 5 years ago.

Required:

(a) Lisas portfolio has provided the rates of return of 16.6%, 17.2%, - 9.6%, 15.5% and 18.4% over the past five years, respectively. Calculate the geometric average return of the portfolio for this period? (1 mark)

(b) Assume that expected return of the stock A in Lisas portfolio is 19.5%. The risk premium on the stocks of the same industry are 7.8%. The current Treasury Bond has the return rate of 7%. Calculate the beta of the stock using Capital Asset Pricing Model (CAPM). (2 marks)

(c)

Supposing that the forecast on the economic situation and returns of the portfolio will be as follows in the next year, calculate the expected return, variance and standard deviation of the portfolio. (4 marks)

State of economy

Probability

Rate of returns

Mild Recession

0.30

- 5%

Growth

0.40

12%

Strong Growth

0.30

25%

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Commodity Market Trading And Investment

Authors: Tom James

1st Edition

1137432802, 978-1137432803

More Books

Students also viewed these Finance questions

Question

If {Y (t), t 0} is a Martingale, show that E[Y (t)] = E[Y (0)]

Answered: 1 week ago

Question

Draft a proposal for a risk assessment exercise.

Answered: 1 week ago