Portfolio Valuation

Questions: Think about offers in two organizations, JAY and KAY, as follows: Anticipated Return E(R) Standard Deviation s Connection Coefficient r Offer JAY 12% 18% 0.3 Offer KAY 24% 32% a) Calculate the covariance between Share JAY and KAY returns. b) What is the normal return and standard deviation of profits on a portfolio including 35% in Share JAY and 65% in Share KAY? c) If you needed to make a portfolio comprising just of these two offers, what amount would you have to contribute (loads) in each offer with the goal that your portfolio return would be equivalent to 15.6%? Note: don't adjust. d) Using the loads determined to a limited extent c), figure the fluctuation and standard deviation of your portfolio. Answers: a) We know, = - 0.3 x = 0.18 y= 0.32 = cov/x * y Accordingly cov = - 0.3* .18* 0.32 = - 0.01728 b) Expected return = w* R = 0.35* 12% + 0.65* 24% = 19.8 Standard deviation = (wi * wj * I * j * cov(i,j) ) ^ 0.5 = 20.8 c) Give speculation access Jay be x In this way interest in Kay will be (1-x) Expected return = w* R = x* 12% + (1-x)* 24% 15.6 = 12x +24 - 24x X = 0.7 In this manner interest in Jay = 70% d) Difference = wi * wj * I * j * cov(i,j) = 214.632 Standard deviation = (wi * wj * I * j * cov(i,j) ) ^ 0.5 = 14.65. References Return, Risk And The Security Market Line - Expected Return, Variance And Standard Deviation Of A Portfolio. Propelled Bond Concepts: Bond Pricing. Profit Discount Model DDM.