Question
You have a 150 million portfolio invested in 3 stocks stocks M, A, D. Your portfolio has a proportion of 45%,25%,30% for stocks M, A,
You have a 150 million portfolio invested in 3 stocks stocks M, A, D. Your portfolio has a proportion of 45%,25%,30% for stocks M, A, D, respectively.
There is a 50% chance that economy remains in status quo thus the interest rate for the next 5 years will be the same at 12% annually. A 30% chance of decreasing economy which makes the interest rates to be more volatile (see Table 1), and 20% probability for improved economy in the next 5 years, thus increasing the investment rate (see Table 2).
Table 1 | |
Period | Interest Rates |
1-year | 6% |
3-year | 10% |
1f2 | 10.5% |
2f2 | 9% |
1f4 | 9.5 |
Table 2 | |
Period | Interest Rates |
2-year | 13.5% |
4-year | 14.8% |
1f4 | 15.9% |
- Calculate the following for each stock:
- Expected value after 5 years of investing?
- Expected rate of return given the probability of economic movement?
- Standard Deviation
- Calculate the correlation of the stocks.
Stocks | M | A | D |
M | 1.0 | ||
A | 1.0 | ||
D | 1.0 |
- Calculate the portfolio performance:
- Expected Rate of Return
- Standard Deviation
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