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    In any of the possible two-stock scenarios, the weight of each stock in the portfolio will be 50%. The three possible portfolio combinations are AB, AC, and BC.

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    I.

    Question Details:
    Spreadsheet Exercise:
    Jane is considering investing in three different stocks or creating three distinct two-stock portfolios. Jane considers herself to be a rather conservative investor. She is able to obtain forecasted returns for the three securities for the years 2007 through 2013. The data are as follows:

    Year Stock A Stock B Stock C
    2007 10% 10% 12%
    2008 13 11 14
    2009 15 8 10
    2010 14 12 11
    2011 16 10 9
    2012 14 15 9
    2013 12 15 10

    In any of the possible two-stock scenarios, the weight of each stock in the portfolio will be 50%. The three possible portfolio combinations are AB, AC, and BC.

    To Do:
    Create a spreadsheet similar to Tables 5.7 or 5.8.
    Table 5.7 (example)
    A. Expected Portfolio Returns

    Forecasted Returns
    Year Asset X Asset Y Portfol. Return Calc. Expec. Port Fol. Return (Kp)
    2007 8% 16% (.50 x 8%) + .(.50 x 16%) = 12%
    2008 10 14 (.50 x 10%) + .50 x 14%) = 12%
    Etc.

    B. Expected Value of Portfolio, 2007-2001
    Kp + 12% +12% + 12% + 12% + 12%/5

    C. Standard Deviation of expected portfolio returns
    Okp = (12% - 12%)squared + 12% -12% squared , etc./5-1
    = standard deviation of 0% + 0%, etc/4
    = 0 in this case.

    Table 5.8 (example)
    Lists

    Assets Portfolios
    Year X Y Z XYa(50%X + 50% Y) XZb (50% X+50% Z)
    2007 8% 16% 8% 12% 8%
    2008 10 14 10 12 10
    Etc.

    Statistics:
    Expected Value: 12% 12% 12% 12% 12%
    Standard Deviation: 3.16% 3.16% 3.16 0% 3.16%

    A. Calculate the expected return for each individual stock
    B. Calculate the standard deviation for each individual stock.
    C. Calculate the expected returns for portfolio AB, AC, and BC
    D. Calculate the standard deviations for portfolios AB, AC, and BC.
    E. Would you recommend that Jane invest in the single stock A or portfolio consisting of stocks A and B? Explain your answer from a risk-return viewpoint.
    F. Would you recommend that Jane invest in the single stock B or the portfolio consisting of stocks B and C? Explain your answer from a risk-return viewpoint.

    See attached file for full problem description.

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    E. Would you recommend that Jane invest in the single stock A or portfolio consisting of stocks A and B? Explain your answer from a risk-return viewpoint.
    The return in stock A is higher at 13.43% as compard to on portfolio AB at 12.50% but the risk of stock A is also higher at 1.99% as compared to
    1.47% for ...

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