Question 3

Peter is a financial investor who actively buys and sells in the securities market. Peter has a portfolio which provided the returns of 13.7%, 10.5%, - 11.7%, 25.5% and 19.2% over the past five years, respectively.

Required:

1. Calculate the arithmetic and geometric average returns of Peters portfolio for this five-year period.
2. Assume that the expected return of the share A in Peters portfolio is 15.4%. The market risk premium is 6.8%, Government Bond rate of return is 7.2%. Calculate the beta co-efficient of this share using the Capital Asset Pricing Model (CAPM).
3. Peter has just set up another portfolio that comprises of two shares only: $3,500 Blue shares and $4,700 Red shares. Below is the data of this portfolio:

	Blue	Red
Expected return	17%	23%
Standard Deviation of return	22%	39%
Correlation of coefficient (p)	0.45

Compute the expected return and measure the risk of Peters portfolio by calculating the portfolio standard deviation.