QUESTION B1 An investor is holding a portfolio which comprises £4 million of Bond A and £6 million of Bond B. Bond A has a daily volatility of 0.1%, and Bond B's daily volatility is 0.3%. The correlation coefficient between A and B is 0.1. Required: a) Calculate the value at risk (VaR) of Bond A and Bond B separately and of the combined portfolio over 7 days at 99% confidence level. b) Using the VaR as calculated in (a) to highlight the benefit of diversification.
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- Question 3: You are an active investor in the securities market and you have established an investment portfolio of two stock A and B five years ago. Required: a) If your portfolio has provided you with returns of 9.7%, -6.2%, 12.1%, 11.5% and 13.3% over the past five years, respectively. Calculate the geometric average return of the portfolio for this period?b) AssumethatexpectedreturnofthestockAinyourportfoliois14.6%.The risk premium on the stocks of the same industry are 5.8%, the risk-free rate of return is 5.9% and the inflation rate was 2.7. Calculate beta of this stock using Capital Asset Pricing Model (CAPM)? D) Assume that the following data available for the portfolio, calculate the expected return, variance and standard deviation of the portfolio given stock A accounts for 45% and stock B accounts for 55% of your portfolio?AB 12.5% 18.5%Expected returnStandard Deviation of return Correlation of coefficient (p) 0.415% 20%Question 4 You are a financial investor who actively buys and sells in the securities market. Now you have a portfolio, including four shares: $7,500 of Share A, $4,800 of Share B, $5,700 of Share C, and $2,500 of Share D. Required: A)Compute the weights of the assets in your portfolio? B)If your portfolio has provided you with returns of 7.7%, 10.5%, - 8.7% and 14.2% over the past four years, respectively. Calculate the geometric average return of the portfolio for this period? C)Assume that expected return of the stock A in your portfolio is 13.2%. The risk premium on the stocks of the same industry are 6.8%, beta of this stock is 1.3. Calculate the risk-free rate of return using Capital market pricing model (CAPM). ? D)You have another portfolio that comprises of two shares only: $500 Tesla shares and $700 Eagle shares. Below is the data of your portfolio: Tesla Eagle Expected…A portfolio consists of two bonds. The probability of joint default of the two bonds is 1.27%, and the default correlation is 30%. The bond value, default probability, and recovery rate are USD 1,000,000,3%, and 60% for one bond, and USD 600,000,5%, and 40% for the other. Q1: What is the expected credit loss (ECL) of the portfolio? Q2: What is the best estimate of the unexpected credit loss (away from the ECL) at a confidence level of 98% over a one-year horizon for this portfolio?
- Quantitative Problem: You are holding a portfolio with the following investments and betas: Stock Dollar investment Beta A $300,000 1.2 B 200,000 1.6 C 400,000 0.75 D 100,000 -0.35 Total investment $1,000,000 The market's required return is 11% and the risk-free rate is 4%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places.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 correctQUESTION 7 An investor wishes to construct a portfolio consisting of a 70 percent allocation to a stock index and a 30 percent allocation to a risk-free asset. The return on the risk-free asset is 4.5 percent, and the expected return on the stock index is 12 percent. Calculate the expected return on the portfolio. a. 16.50 percent b. 17.50 percent c. 14.38 percent d. 9.75 percent e. 8.25 percent
- Quantitative Problem: You are holding a portfolio with the following investments and betas: Stock Dollar investment Beta A $300,000 1.3 B 200,000 1.6 C 500,000 0.75 D 0 -0.15 Total investment 1,000,000 The market's required return is 11% and the risk-free rate is 3%. What is the portfolio's required return? Round your answer to 3 decimal places. Do not round intermediate calculations.%Question 4 You are an experienced investor in the securities market and you have established an investment portfolio of two blue chips five years ago: Diamond shares with current market value of $235,000 and Platinum shares with current market value of $355,000. Required: a) If your portfolio has provided you with returns of 10.5%, 12.6%, - 11.5%, 14.5% and 15.2% over the past five years, respectively. Calculate geometric average return of the portfolio for this period. b) Assume that data in the table below is available for your portfolio performance, calculate the expected return, variance and standard deviation of the portfolio? Diamond Platinum Expected return 16.5% 23.5% Standard Deviation of return 7% 11% Correlation of coefficient (p) 0.45 c) Assume that beta of the Diamond shares in your portfolio is 1.5. The market portfolio expected…You invest $1,028 portfolio holding a risky asset and a Treasury bill. You expect the portfolio to reach a value of $1,105 in 1 year. Expected Return of Risky Asset: 27% Standard Deviation of Risky Assets: 11% Expected Return of Treasury Bill: 3% This is only possible if the weight of the risky asset is ____________________________. *Please round to the nearest two decimals. *Please state your answer as percentage and not as decimal (i.e. 40 and not 0.40) *Please do not use the symbol %
- Question 3 Peter is a financial investor who actively buys and sells in the securities market. Peter has a portfolio which provided the returns of 13.7%, 10.5%, - 11.7%, 25.5% and 19.2% over the past five years, respectively. Required: Calculate the arithmetic and geometric average returns of Peter’s portfolio for this five-year period. Assume that the expected return of the share A in Peter’s portfolio is 15.4%. The market risk premium is 6.8%, Government Bond rate of return is 7.2%. Calculate the beta co-efficient of this share using the Capital Asset Pricing Model (CAPM). Peter has just set up another portfolio that comprises of two shares only: $3,500 Blue shares and $4,700 Red shares. Below is the data of this portfolio: Blue Red Expected return 17% 23% Standard Deviation of return 22% 39% Correlation of coefficient (p) - 0.45…QUESTION 10 An investor wishes to construct a portfolio by borrowing 35 percent of his original wealth and investing all the money in a stock index. The return on the risk-free asset is 4.0 percent, and the expected return on the stock index is 15 percent. Calculate the expected return on the portfolio. a. 9.50 percent b. 18.25 percent c. 11.15 percent d. 15.00 percent e. 18.85 percent2. Mr. Morgan is planning to invest £20m in one of two following portfolios. Both portfolios consist of four securities from various industries. The correlation between the returns of the individual securities is thought to be close to zero. Portfolio A investments Equity beta Expected return (%) Amount invested (£m) 1 1.6 18 4 2 0.2 5 6 3 0.6 7 7 4 1 10 3 Portfolio B investments Equity beta Expected return (%) Amount invested (£m) 1 1.4 11 3 2 0.8 10 5 3 0 4.5 7 4 0.4 6 5 QUESTION: (a) Mr. Morgan decides to use the capital asset pricing model (CAPM) to compare the portfolios. The current market return is estimated to be 10 per cent and the rate on Treasury bills is 4.5 per cent. Using the information provided, recommend which one should be selected.