Sheet 5Use Sheet 5 to complete the followingDateAMZN ReturnBAC ReturnMarket ReturnRisk-Free Return AMZN Excess Return*BAC Excess Return*Market Excess Return*3/1/20170.05-0.040.040.0050 0.04-0.050.034/1/20170.04-0.010.000.0050 0.04-0.02-0.015/1/20170.08-0.040.010.0050 0.07-0.040.006/1/2017-0.030.080.010.0050 -0.030.080.017/1/20170.02-0.010.000.0050 0.02-0.010.008/1/2017-0.01-0.010.020.0050 -0.01-0.010.019/1/2017-0.020.060.000.0050 -0.020.060.0010/1/20170.150.080.020.0050 0.140.080.0111/1/20170.060.030.020.0050 0.060.020.0212/1/2017-0.010.050.030.0050 -0.010.040.021/1/20180.240.080.010.0050 0.240.080.002/1/20180.040.000.060.0050 0.040.000.053/1/2018-0.04-0.07-0.040.0050 -0.05-0.07-0.044/1/20180.080.00-0.030.0050 0.08-0.01-0.035/1/20180.04-0.030.000.0050 0.04-0.030.006/1/20180.04-0.030.020.0050 0.04-0.030.027/1/20180.050.100.000.0050 0.040.090.008/1/20180.130.000.040.0050 0.130.000.039/1/20180.00-0.050.030.0050 -0.01-0.050.0310/1/2018-0.20-0.070.000.0050 -0.21-0.070.0011/1/20180.060.03-0.070.0050 0.050.03-0.0712/1/2018-0.11-0.130.020.0050 -0.12-0.140.011/1/20190.140.16-0.090.0050 0.140.15-0.102/1/2019-0.050.020.080.0050 -0.050.020.073/1/20190.09-0.050.030.0050 0.08-0.060.024/1/20190.080.110.020.0050 0.080.100.015/1/2019-0.08-0.130.040.0050 -0.08-0.140.036/1/20190.070.09-0.070.0050 0.060.09-0.077/1/2019-0.010.060.070.0050 -0.020.050.068/1/2019-0.05-0.100.010.0050 -0.05-0.110.019/1/2019-0.020.06-0.020.0050 -0.030.06-0.0210/1/20190.020.070.020.0050 0.020.070.0111/1/20190.010.070.020.0050 0.010.060.0212/1/20190.030.060.030.0050 0.020.050.031/1/20200.09-0.070.030.0050 0.08-0.070.02 SECTION 3 Average Excess Return0.02310.00560.0056 Std. Deviation of Return0.08010.07000.0354 Beta-0.4315-0.5539 Covariance**-0.00053-0.000675 ABCDEF43 PortfolioPortfolioPortfolio Nature:** Defensive/AggressiveWeight on Weight on Portfolio PortfolioStandard44 AMZNВАСReturnBetaDeviation*451Defensive460.10.9Defensive470.20.8Defensive480.30.7Defensive490.40.6Defensive500.50.5Defensive510.60.4Defensive520.70.3Defensive0.20.1530.8Defensive540.9Defensive551Defensive Draw a Characteristic Line*** for AMZNDraw a Characteristic Line*** for BACNotes:* Excess return is the return that is earned over and above the risk free return** Covariance measures the combined risk of holding two stocks at the same time. It is computed by using the Covariance function in Excel*** A characteristic line is the line of best fit which describes the scatter plot when a stock's excess return is measure on the X-Axis (Dependentvariable) and the market's excess return is measured on the Y-Axis (Independent variable). You can refer to a quick demonstration here:https://www.youtube.com/watch?v=HXO6ANAGWYQ**** For computing the standard deviation of the portfolio, the following formula should be used:2+ w?o} + 2w,w,Cov 1,21In the formula above, the left hand side of the equation signifies standard deviation of the portfolio.The greek letter sigma is the general significator of standard deviation.W, is the weight placed on the first stock in the portfolio.W, is the weight placed on the second stock in the portfolio.Cov12 is the covariance between the first and second stock

Portfolio Return, Risk, and Beta: A portfolio's return is the weighted average of the returns of its…

Answered: 43 Portfolio Weight on Weight on…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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State whether the Portfolio Nature is Defensive/Aggressive. Weight on XOM Weight on PFE Portfolio Return Portfolio Beta Portfolio Standard Deviation**** Portfolio Nature: Defensive/Aggressive 0 1 -0.0016 0.2854 0.0439 0.1 0.9 -0.0025 0.3069 0.0420 0.2 0.8 -0.0034 0.3285 0.0408 0.3 0.7 -0.0044 0.3501 0.0405 0.4 0.6 -0.0053 0.3717 0.0410 0.5 0.5 -0.0063 0.3932 0.0424 0.6 0.4 -0.0072 0.4148 0.0445 0.7 0.3 -0.0081 0.4364 0.0472 0.8 0.2 -0.0091 0.4579 0.0504 0.9 0.1 -0.0100 0.4795 0.0541 1 0 -0.0110 0.5011 0.0582
D4) Finance Consider a portfolio composed of shares AAA and BBB as shown in the following table. At 95% confidence level, select the correct statement AAA BBB Value 2,470,000 785,750 % investment 76% 24% Volatilities 2.32 % 2.69 % Correlation for both assets 0.65 Portfolio Value for both assets 3,255,750 a) The Component VaR of the Asset AAA is 92,223 and the component VaR of the Asset BBB is 27955.69 b) The contribution to the VaR of the Asset AAA is 77% and the one of the Asset 2 is 23% c) Both answers are correct
XYZ portfolio containing 42% equities, 18% real assets, 3% cash and 37% fixed income ZBG portfolio containing 85% equities, 15% real assets, 3% cash and 2% fixed income ZBG portfolio would be best described as a Conservative Portfolio Aggressive Portfolio Moderate Portfolio
Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2 0.1 0.9 0.223 A3 0.12 1.1 0.138 A4 0.08 0.8 0.125 Market 0.11 1 0.2 RFR 0.03 0 0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio. a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14 e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14
State ofEconomy Probabilityof State Return on AssetDin State Return on AssetEin State Return on AssetFin State Boom 0.35 0.060 0.310 0.25 Normal 0.50 0.060 0.180 0.20 Recession 0.15 0.060 -0.210 0.10 1.As an investor, compare Stock E with Stock F, and identify which stock willyou select and why.
Consider following information on a risky portfolio, risk-free asset and the market index. What is the T2 of the risky portfolio? Risky portfolio Risk-free asset Market index Average return 8.2% 2% 6% Std. Dev. 26% 20% Residual std. dev. 10% Alpha 1.4% Beta 1.2
Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T 11.7% 18.5% U 6.2% 7.5% What is the minimum level of risk that would be necessary for an investment to earn 7.0%? What is the composition of the portfolio along the Capital Market Line (CML) that will generate that expected return? Rf= 3%
Risky Portfolio Standard Deviation: 10.56% Average Risk Free Rate: 2.18% Using these figures: a) Select the best one among these using appropriate tool (formula) and provide your rationale for your selection. Show necessary calculations.b. Should you stick to your original portfolio or switch to one of the following? Explain Avaliable Portfolios to invest: Avg Return Standard Deviation Portfolio A 7.5 12.4 Portfolio B 7.2 11.75 Portfolio C 6.7 10.55 Portfolio D 8.5 14.3
2. Assuming the following: Average Return (Risky Portfolio) 3.86% Standard Dev (Risky Portfolio) 10.56% Average Risk Free Rate 2.18% Return on Risk Free Asset Avg 4.15% Using the formula: E(rc)=rf + y* (E(rp) - rf) Solve for: 1. % of Risky Assets (y): 2. % of Risk Free Assets (1-y): Note: You wish to generate a 7% return for your complete portfolio E(rc)
Year Risk free rate (%) Return_risk-free asset 2011 4.51 - 2012 3.11 2013 2.61 2014 2.75 2015 2.34 2016 1.78 2017 1.77 2018 2.02 2019 0.90 2020 0.02 Average Calculate return on risk free asset and its average and assume: Average (Return on Risky Portfolio) 3.86% Standard deviation (Risky Portfolio) 10.56% Expected Return (Complete Portfolio) 7% Solve for the proportions of y and (1-y) such that: E(Rc)=Rf+y[E(rp)-rf]) = 7%
Consider the following performance data for a portfolio manager: Benchmark Portfolio Index Portfolio Weight Weight Return Return Stocks 0.65 0.7 0.11 0.12 Bonds 0.3 0.25 0.07 0.08 Cash 0.05 0.05 0.03 0.025 a.Calculate the percentage return that can be attributed to the asset allocation decision. b.Calculate the percentage return that can be attributed to the security selection decision.
As a portfolio manager, you are required to take investment decision from the following two alternative scenarios: (Decision Criterion: Select a portfolio on relative risk basis) Scenario 1: Construct a portfolio with 60% investment in ICC: Expected Return (in %) Risk (as Std Div.) Covariance BPL 12 4 BPL & ICC: -1.2 ICC 7 2 Scenario 2: Construct equal weighted portfolios from following securities Expected Return (in %) Risk (as Std Div.) Covariance PSL 11 5 PSL & IPL: 3.75 IPL 8 3

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Date	AMZN Return	BAC Return	Market Return	Risk-Free Return		AMZN Excess Return*	BAC Excess Return*	Market Excess Return*
3/1/2017	0.05	-0.04	0.04	0.0050		0.04	-0.05	0.03
4/1/2017	0.04	-0.01	0.00	0.0050		0.04	-0.02	-0.01
5/1/2017	0.08	-0.04	0.01	0.0050		0.07	-0.04	0.00
6/1/2017	-0.03	0.08	0.01	0.0050		-0.03	0.08	0.01
7/1/2017	0.02	-0.01	0.00	0.0050		0.02	-0.01	0.00
8/1/2017	-0.01	-0.01	0.02	0.0050		-0.01	-0.01	0.01
9/1/2017	-0.02	0.06	0.00	0.0050		-0.02	0.06	0.00
10/1/2017	0.15	0.08	0.02	0.0050		0.14	0.08	0.01
11/1/2017	0.06	0.03	0.02	0.0050		0.06	0.02	0.02
12/1/2017	-0.01	0.05	0.03	0.0050		-0.01	0.04	0.02
1/1/2018	0.24	0.08	0.01	0.0050		0.24	0.08	0.00
2/1/2018	0.04	0.00	0.06	0.0050		0.04	0.00	0.05
3/1/2018	-0.04	-0.07	-0.04	0.0050		-0.05	-0.07	-0.04
4/1/2018	0.08	0.00	-0.03	0.0050		0.08	-0.01	-0.03
5/1/2018	0.04	-0.03	0.00	0.0050		0.04	-0.03	0.00
6/1/2018	0.04	-0.03	0.02	0.0050		0.04	-0.03	0.02
7/1/2018	0.05	0.10	0.00	0.0050		0.04	0.09	0.00
8/1/2018	0.13	0.00	0.04	0.0050		0.13	0.00	0.03
9/1/2018	0.00	-0.05	0.03	0.0050		-0.01	-0.05	0.03
10/1/2018	-0.20	-0.07	0.00	0.0050		-0.21	-0.07	0.00
11/1/2018	0.06	0.03	-0.07	0.0050		0.05	0.03	-0.07
12/1/2018	-0.11	-0.13	0.02	0.0050		-0.12	-0.14	0.01
1/1/2019	0.14	0.16	-0.09	0.0050		0.14	0.15	-0.10
2/1/2019	-0.05	0.02	0.08	0.0050		-0.05	0.02	0.07
3/1/2019	0.09	-0.05	0.03	0.0050		0.08	-0.06	0.02
4/1/2019	0.08	0.11	0.02	0.0050		0.08	0.10	0.01
5/1/2019	-0.08	-0.13	0.04	0.0050		-0.08	-0.14	0.03
6/1/2019	0.07	0.09	-0.07	0.0050		0.06	0.09	-0.07
7/1/2019	-0.01	0.06	0.07	0.0050		-0.02	0.05	0.06
8/1/2019	-0.05	-0.10	0.01	0.0050		-0.05	-0.11	0.01
9/1/2019	-0.02	0.06	-0.02	0.0050		-0.03	0.06	-0.02
10/1/2019	0.02	0.07	0.02	0.0050		0.02	0.07	0.01
11/1/2019	0.01	0.07	0.02	0.0050		0.01	0.06	0.02
12/1/2019	0.03	0.06	0.03	0.0050		0.02	0.05	0.03
1/1/2020	0.09	-0.07	0.03	0.0050		0.08	-0.07	0.02
				SECTION 3	Average Excess Return	0.0231	0.0056	0.0056
				Std. Deviation of Return	0.0801	0.0700	0.0354
				Beta	-0.4315	-0.5539
				Covariance**	-0.00053	-0.000675