# Modern Portfolio Theory and Investment Analysis - Chapter 4 Problem 1

Autor:   •  December 2, 2018  •  Case Study  •  814 Words (4 Pages)  •  145 Views

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Chapter 4 Problem 1

Expected return of each assets:

[pic 1]

Standart deviations of each assets:

[pic 2]

[pic 3]

Covariance of return for Asset 1 and 2

[pic 4]

Covariance values for all possible pairs

 Particulars Asset 1 Asset 2 Asset3 Asset 4 Asset 1 8 -4 12 0 Asset 2 -4 2 -6 0 Asset 3 12 -6 18 0 Asset 4 0 0 0 10.7

Correlation between asset 1 and 2 is :

[pic 5] [pic 6]  [pic 7]

Correlation values for all possible pairs:

 Particulars Asset 1 Asset 2 Asset3 Asset 4 Asset 1 1 -1 1 0 Asset 2 -1 1 -1 0 Asset 3 1 -1 1 0 Asset 4 0 0 0 1

The expected return for portfolio A:

[pic 8]

Expected Return For All Assets:

 Portfolio Expected Return % A 9 B 13 C 12 D 10 E 13 F 10.67 G 10.67 H 12.67 I 11

Variance of Portfolio A

[pic 9]

 Portfolio Variance Standart Deviaton A 0.5 0.707 B 12.5 3.536 C 4.6 2.145 D 2 1.414 E 7 2.646 F 3.6 1.897 G 2 1.414 H 6.7 2.588 I 2.7 1.643

Each of the four assets in expected return and standart deviation space

[pic 10]

Chapter 4 Problem 3

The average variance of return for an individual security is 50 , The average covariance is 10

Objective is to compute the expected variance of an equally weighted portfolio of 5 , 10 ,20, 50, and 100 securities.

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