(a) Explain the meaning of a model and describe the basic features of a financial model. [4 marks]

(b) Outline the basic assumptions that underlie Markowitz portfolio theory. [5 marks]

(c) The variance of a portfolio containing 2 securities ‘A’ and ‘B’ is given by
s_p^2=W_A^2 s_A^2+W_(B )^2 s_B^2 +2W_A W_B ?_((A,B) ) s_A s_B

Where W_A= Proportion of security A in the portfolio

W_B = Proportion of security B in the portfolio.

Show that when (ds^2 p)/(dW_A )=0 , W_A= (s_B^2-?_((A,B) ) s_A s_B)/(s_A^2+s_B^2-?2??_(A,B) s_A s_B ) [6 marks]

(c) You are evaluating an investment in two companies whose past ten years of returns are shown below:

Company Percent return during the year
1 2 3 4 5 6 7 8 9 10
ABC 37 24 -7 6 18 32 -5 21 18 6
XYZ 32 29 -12 1 15 30 0 18 27 10

(i) Calculate the standard deviation of each company’s returns. [6 marks]

(ii) If you placed 50% of your investment in each, what would be the standard deviation of your portfolio? [3 marks]

(iii) Calculate the correlation coefficient of the companies returns. [4 marks]

(iv) What percentage investment in each would result in the lowest risk? [2 marks]

 

 

 

For a custom-written paper on the above topic, place your order now!

What We Offer
• On-time delivery guarantee
• PhD-level professionals
• Automatic plagiarism check
• 100% money-back guarantee
• 100% Privacy and Confidentiality
• High Quality custom-written papers

 

Found something interesting ?

• On-time delivery guarantee
• PhD-level professional writers
• Free Plagiarism Report

• 100% money-back guarantee
• Absolute Privacy & Confidentiality
• High Quality custom-written papers

Related Model Questions

Feel free to peruse our college and university model questions. If any our our assignment tasks interests you, click to place your order. Every paper is written by our professional essay writers from scratch to avoid plagiarism. We guarantee highest quality of work besides delivering your paper on time.

Grab your Discount!

25% Coupon Code: SAVE25
get 25% !!