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  • Ch8 Two Security

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    Ronil Shah
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    1) The document analyzes risk and return for a two security portfolio. It calculates the minimum variance portfolio and the optimal risky portfolio. 2) The optimal risky portfolio allocates 39.063% to Security 1 and 60.937% to Security 2, achieving an expected return of 13.875% and standard deviation of 20.311%. 3) For a desired return of 12%, the optimal portfolio with a risk-free asset allocates 81.928% to the optimal portfolio and 18.072% to the risk-free asset, achieving the target return with a standard deviation of 16.641%.

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    1) The document analyzes risk and return for a two security portfolio. It calculates the minimum variance portfolio and the optimal risky portfolio. 2) The optimal risky portfolio allocates 39.063% to Security 1 and 60.937% to Security 2, achieving an expected return of 13.875% and standard deviation of 20.311%. 3) For a desired return of 12%, the optimal portfolio with a risk-free asset allocates 81.928% to the optimal portfolio and 18.072% to the risk-free asset, achieving the target return with a standard deviation of 16.641%.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xls, pdf, or txt
    23 views2 pages

    Ch8 Two Security

    Uploaded by

    Ronil Shah
    1) The document analyzes risk and return for a two security portfolio. It calculates the minimum variance portfolio and the optimal risky portfolio. 2) The optimal risky portfolio allocates 39.063% to Security 1 and 60.937% to Security 2, achieving an expected return of 13.875% and standard deviation of 20.311%. 3) For a desired return of 12%, the optimal portfolio with a risk-free asset allocates 81.928% to the optimal portfolio and 18.072% to the risk-free asset, achieving the target return with a standard deviation of 16.641%.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xls, pdf, or txt
    of 2

    Chapter 8 2 Sec

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    A
    B
    Chapter 8 Two Security Portfolio

    Asset Allocation Analysis: Risk and Return


    Expected
    Standard
    Return
    Deviation
    Security 1
    0.08
    0.12
    Security 2
    0.13
    0.2
    T-Bill
    0.05
    0

    Weight
    Security 1
    1
    0.9
    0.8
    0.7
    0.6
    0.5
    0.4
    0.3
    0.2
    0.1
    0

    Weight
    Security 2
    0
    0.1
    0.2
    0.3
    0.4
    0.5
    0.6
    0.7
    0.8
    0.9
    1

    Minimum Variance Portfolio


    Weight 1
    Weight 2
    Return
    Risk
    CAL(MV)
    Optimal Risky Portfolio
    Weight 1
    Weight 2
    Ex Ret
    St Dev.
    CAL(OR)
    Reward to
    Variability

    Corr.
    Coeff s,b Covariance
    0.3
    0.0072

    Expected
    Standard Reward to
    Return
    Deviation Variability
    0.08000
    0.12000 0.25000
    0.08500
    0.11559 0.30281
    0.09000
    0.11454 0.34922
    0.09500
    0.11696 0.38474
    0.10000
    0.12264 0.40771
    0.10500
    0.13115 0.41937
    0.11000
    0.14199 0.42258
    0.11500
    0.15466 0.42027
    0.12000
    0.16876 0.41479
    0.12500
    0.18396 0.40771
    0.13000
    0.20000 0.40000
    Short Sales No Short
    Allowed
    Sales
    0.82000
    0.82000
    0.18000
    0.18000
    0.08900
    0.08900
    0.11447
    0.11447

    Short Sales No Short


    Allowed
    Sales
    0.40000
    0.40000
    0.60000
    0.60000
    0.11000
    0.11000
    0.14199
    0.14199

    0.42258

    0.42258

    Optimal Portfolio with a Risk Free Asset


    Short Sales No Short
    Allowed
    Sales
    Desired rate of return:
    0.12
    Weight OP
    Weight RF
    Ex Ret
    St Dev

    1.16667
    -0.16667
    0.12000
    0.16565

    Optimal Portfolio w/o a Risk Free Asset


    Desired rate of return:

    0.12

    Weight 1
    Weight 2
    Ex. Return
    St Dev

    0.20000
    0.80000
    0.12000
    0.16876

    1.16667
    -0.16667
    0.12000
    0.16565

    Chapter 8 2 Sec Sol

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    Chapter 8 Two Security Portfolio

    Asset Allocation Analysis: Risk and Return


    Expected
    Standard
    Corr.
    Return
    Deviation
    Coeff 1,2 Covariance
    Security 1
    0.09
    0.18
    0.3
    0.01512
    Security 2
    0.17
    0.28
    T-Bill
    0.035
    0

    Weight
    Weight
    Security 1 Security 2
    1
    0
    0.9
    0.1
    0.8
    0.2
    0.7
    0.3
    0.6
    0.4
    0.5
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    0.6
    0.3
    0.7
    0.2
    0.8
    0.1
    0.9
    0
    1

    Expected Standard Reward to


    Return
    Deviation Variability
    0.09000
    0.18000 0.30556
    0.09800
    0.17248 0.36526
    0.10600
    0.16944 0.41902
    0.11400
    0.17112 0.46166
    0.12200
    0.17739 0.49046
    0.13000
    0.18778 0.50592
    0.13800
    0.20166 0.51077
    0.14600
    0.21836 0.50833
    0.15400
    0.23730 0.50148
    0.16200
    0.25797 0.49230
    0.17000
    0.28000 0.48214

    Minimum Variance Portfolio


    Short Sales No Short
    Allowed
    Sales
    Weight 1
    0.78550
    0.78550
    Weight 2
    0.21450
    0.21450
    Return
    0.10716
    0.10716
    Risk
    0.16939
    0.16939
    CAL(MV)
    Optimal Risky Portfolio Short Sales No Short
    Allowed
    Sales
    Weight 1
    0.39063
    0.39063
    Weight 2
    0.60937
    0.60937
    Ex Ret
    0.13875
    0.13875
    St Dev.
    0.20311
    0.20311
    CAL(OR)
    Reward to
    Variability

    0.51080

    0.51080

    Optimal Portfolio with a Risk Free Asset


    Short Sales No Short
    Allowed
    Sales
    Desired rate of return:
    0.12
    Weight OP
    Weight RF
    Ex Ret
    St Dev

    0.81928
    0.18072
    0.12000
    0.16641

    Optimal Portfolio w/o a Risk Free Asset


    Desired rate of return:

    0.12

    Weight 1
    Weight 2
    Ex. Return
    St Dev

    0.62500
    0.37500
    0.12000
    0.17541

    0.81928
    0.18072
    0.12000
    0.16641

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