Finance II Week 1 Introduction Personal Introduction Course Introduction

# Finance ii week 1 introduction personal introduction

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Finance IIWeek 1Question 5aA portfolio consists of three stocks, 30% is invested in thefirst stock, 25% in the second stock and 45% in the third.The yearly average return is 10% for the first stock, 12%for the second and 13% for the third. The below table givesthe historical Variance-Covariance matrix of the (yearly) stockreturns: Introduction Personal Introduction Course Introduction Question 1 Question 2 Question 3 a b c d Question 5 a b Question 6 a b c Question 7 a b Question 8 a b c 0.10 0.04 0.03 0.04 0.20 0.04 0.03 0.04 0.60 I Compute the average return of the portfolio. ¯ R p = N X i =1 w i · ¯ R i = 0 . 3 · 10%+0 . 25 · 12%+0 . 45 · 13% = 11 . 85%
Finance IIWeek 1IntroductionPersonal IntroductionCourse IntroductionQuestion 1Question 2Question 3abcdQuestion 5abQuestion 5bThe below table gives the historical Variance-Covariance ma-trix of the (yearly) stock returns:0.100.040.030.040.200.040.030.040.60I¯Rp= 11.85%ICompute the yearly variance and volatility of theportfolio return. Question 6 a b c Question 7 a b Question 8 a b c
Finance IIWeek 1IntroductionPersonal IntroductionCourse IntroductionQuestion 1Question 2 Question 5ab Question 6 a b c Question 7 Question 8 a b c Question 5bThe below table gives the historical Variance-Covariance ma-trix of the (yearly) stock returns:0.100.040.030.040.200.040.030.040.60 ICompute the yearly variance and volatility of theportfolio return. Var p = N X i =1 w 2 i Var ( R i ) + 2 N - 1 X i =1 N X j = i +1 w i w j cov ( R i , R j )
Finance II Week 1 Introduction Personal Introduction Course Introduction Question 1 Question 2 Question 3 a b c d Question 5 a b Question 6 a b c Question 7 a b Question 8 a b c Question 5b The below table gives the historical Variance-Covariance ma- trix of the (yearly) stock returns: 0.10 0.04 0.03 0.04 0.20 0.04 0.03 0.04 0.60 I ¯ R p = 11 . 85% I Var p = 0 . 166 I Compute the yearly variance and volatility of the portfolio return. σ p = p Var p = 0 . 166 = 40 . 76%
Finance II Week 1 Introduction Personal Introduction Course Introduction Question 1 Question 2 Question 3 a b c d Question 5 a b Question 6 a b c Question 7 a b Question 8 a b c Question 6 A portfolio consists of 8 stocks. The following is known about the weights w i , the volatilities and the correlations: I w 1 = w 2 = 0 . 2 I w 3 = w 4 = w 5 = w 6 = w 7 = w 8 = 0 . 1 I ρ ij = 0 . 3 , i 6 = j I σ i = 40%
Finance II Week 1 Introduction Personal Introduction Course Introduction Question 1 Question 2 Question 3 a b c d Question 5 a b Question 6 a b c Question 7 Question 6a I w 1 = w 2 = 0 . 2 I w 3 = w 4 = w 5 = w 6 = w 7 = w 8 = 0 . 1 I ρ ij = 0 . 3 , i 6 = j I σ i = 40% , σ 2 i = (40%) 2 = 0 . 16 I Cov ij = ρ ij σ i σ j = 0 . 3 · 40% · 40% = 0 . 048 I Compute the variance and volatility of the portfolio return Var p = N X i =1 w 2 i Var ( R i ) + 2 N - 1 X i =1 N X j = i +1 w i w j cov ( R i , R j )
Finance II Week 1 Introduction Personal Introduction Course Introduction Question 1 Question 2 Question 3 a b c d Question 5 a b Question 6 a b c Question 7 a b Question 8 a b c Question 6b Now suppose all the weights are the same. Again compute the variance and volatility of the portfolio return.
Finance II Week 1 Introduction Personal Introduction Course Introduction Question 1 Question 2

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