UGBA103-F04-class11-moreportfolios(6slides)

# UGBA103-F04-class11-moreportfolios(6slides) - Todays plan...

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1 class #11 page 1 More Portfolios class #11 class #11 page 2 Today’s plan • Review some concepts from last class • Finish up on this portfolio math stuff • Talk about risk • Move on to the first conceptually difficult part of this course • Re-visit the risk issue class #11 page 3 Homework #2 Due Date postponed • Please submit HW#2 next Friday (22 nd October 2004). class #11 page 4 Review from last class (2) Question: when calculating the portfolio weights (x i ) which of the following do we use ? (a) shares held in each stock (b) stock price of each stock (c) returns of each stock (d) dollar value held in each stock Question: when we talk about portfolio weights (x i ), what units are they in? (a) dollars (b) percentages (c) returns class #11 page 5 Review from last class (3) How can we write “covariance” of the return of stock “i” with the return of stock “j” by using Greek letters ? j i j , i j , i or σ σ ρ σ class #11 page 6 Review from last class (4) In this class, what is the sum of the portfolio weights (x i ) (if we add them up, what should we always get) ? 1 x N 1 i i = =

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2 class #11 page 7 Review from last class (5) ( true or false ) [] [] i j ??? j i r , r Cov r , r Cov = class #11 page 8 Review from last class (6) What is the covariance of “i” with “i” ? [ ]= i i r , r Cov [ ][ ] 2 i i , i i i i r Var r , r Cov σ = σ = class #11 page 9 Review from last class (7) • Which square would you like your portfolio to be in ? Return Low Risk High Return High Risk High Return Low Risk Low Return High Risk Low Return Risk class #11 page 10 Portfolios with 2 stocks • Which stock would you rather own ? Return Stdev 25% 15% 8% 14% Stock #2 Stock #1 20 . 0 2 , 1 = ρ class #11 page 11 Portfolios with 2 stocks (2) • What if you own 50% of #1 and 50% of #2 ? • What is the expected return of the portfolio ? Return Stdev 25% 15% 8% 14% Stock #2 Stock #1 20 . 0 2 , 1 = ρ 15.8% 11% class #11 page 12 Portfolios with 2 stocks (3) • Actually we can hold any percentage of #1 and #2 … Return Stdev 25% 15% 8% 14% Stock #2 Stock #1 20 . 0
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UGBA103-F04-class11-moreportfolios(6slides) - Todays plan...

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