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Capital Market and Portfolio Management
1. Calculate the standard
deviation and return of a portfolio consisting of 70% of investment in Alpha
Ltd and 30% of investment in Gamma Ltd.
|
Probability |
Alpha Ltd return (%) |
Gamma Ltd return (%) |
|
20% |
12 |
16 |
|
30% |
15 |
14 |
|
25% |
10 |
10 |
|
15% |
12 |
8 |
|
10% |
5 |
6 |
Introduction:
Standard deviation is used to
identify the risk quotient linked to or associated with particular security
that forms part of the portfolio. Return of portfolio or portfolio return is
explained as the profit or loss that might arise by making an investment in an
investment portfolio which is a combination of multiple or different types of
investments.
Concept and
2. Calculate the Beta of the stock if the
following information is available:
|
Year |
Stock Return |
Market Return |
|
1 |
24% |
20% |
|
2 |
30% |
24% |
|
3 |
15% |
18% |
|
4 |
20% |
22% |
|
5 |
25% |
18% |
Explain Beta and comment
on the value of Beta as calculated above. From companies listed on BSE give 2
examples each of Beta>1 and Beta <1.
(10 Marks)
Introduction:
The beta
coefficient is a concept used in fundamental analysis to access the volatility
of a stock or an asset when compared to the overall market. As a general
practice, the overall beta of the market is considered to be 1.0. An investor using beta calculations is trying to find out
how much risk a stock is adding to a portfolio. Risks in the market are of two
types:
a. Systematic risk, also
known as
3. Neha has joined as an
Analyst in a company after completing her MBA and was asked by her manager to
suggest which one is a better portfolio on the basis of the given data:
TABLE
BELOW
|
Observed Return |
Beta |
||
|
Portfolio Delta |
20% |
1.25 |
|
|
Portfolio Theta |
17% |
0.8 |
|
Risk-free rate is 6.5%,
Return on the market portfolio is 15%, Standard Deviation of the market is 10%.
a. Suggest which
portfolio has outperformed the market on the basis of Jensen index. (5
Marks)
Introduction
Jensen index was developed by
American economist Michel Jensen in 1968, this model can be used to monitor the
fund performance along with a risk-adjusted basis.
Concept and application:
Jensen index is an index that emulates the performance of
investment managers by allowing for portfolio risk. It uses the capital asset
pricing model (CAPM) to find out whether a money manager outperformed a market
index. A high Jensen index indicates a high level of return given Dear students, get fully solved assignments by professionals
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