Demo Qs Topic 5 Part 1

# Demo Qs Topic 5 Part 1 - DEMONSTRATION LECTURE QUESTIONS...

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Unformatted text preview: DEMONSTRATION LECTURE QUESTIONS TOPIC 5 - RISK AND RETURN PART 1 Question 1 You are given the following information about the possible returns from an investment. Return Probabilities 12% .15 9% .60 6% .25 Required: (a) Calculate the expected return (b) Calculate the variance of the return (c) Calculate the standard deviation of the return. SOLUTIONS QUESTION 1 a) ( 29 ( 29 ( 29 ( 29 ( 29 ( 29 ( 29 r r r i t t t n = = + + = = ∑ Pr . . . . 1 12 015 9 06 6 0 25 8 7% ( 29 ( 29 b) Variance =- = ∑ r r r t i t t n 2 1 Pr ( 29 ( 29 ( 29 ( 29 ( 29 ( 29 =- +- +- = 12 8 7 015 9 8 7 0 6 6 8 7 025 351 2 2 2 . . . . . . . c) Standard deviation = = = 1.8735% Question 2 An investor invests 40 per cent of her funds in Company A's shares and the remainder in Company B's shares. The standard deviation of the returns on A is 20 per cent and on B is 10 per cent. Calculate the variance of return on the portfolio assuming the correlation between the returns on the two securities is: A) +1.0 B) +0.5 C) D) -0.5 SOLUTION QUESTION 2 ....
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Demo Qs Topic 5 Part 1 - DEMONSTRATION LECTURE QUESTIONS...

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