ASSIGNMENT #1 (FSP)

STUDENT NAME: QURAT-ANWAR

I.D #:19095
QUESTION#1:
PART A:
HISTORICAL AVERAGE RATE OF RETURN=???

SOLUTION:
formula:
sum of r
r (avg) =-------------------
n (no of obj)

For STOCK “A” :

-24.25+18.50+38.67+14.33+39.13
r A=--------------------------------------------------------------
5

rA = 17.276

For STOCK “B” :

5.50+26.73+48.25+(-4.50)+43.86
r B=--------------------------------------------------------------
5

rB = 23.968

PART B:
Calculation for ,if portfolio include 50% of stock A And 50% of stock B,Then
realized rate of return for every year will be calculated as follows:

FOR STOCK “A”:

YEAR PROPOTION RETURN ON STOCK “A” NET RETURN
2004 0.5 -24.25 *0.5 -12.125
2005 0.5 18.50*0.5 9.25
2006 0.5 38.67*0.5 19.335
2007 0.5 14.33* 0.5 7.165
2008 0.5 39.13* 0.5 19.565
43.15
TOTAL=
FOR STOCK “B”:
YEAR PROPOTION RETURN ON STOCK “A” NET RETURN
2004 0.5 5.50 *0.5 2.75
2005 0.5 26.73*0.5 13.365
2006 0.5 48.25*0.5 24.125
2007 0.5 -4.50* 0.5 -2.25
2008 0.5 43.86 * 0.5 21.93
59.92
TOTAL=

SUM NOW:
43.19+59.92
= --------------------------
2

103.11
= -----------------
2

20.622

FOR STANDARD DEVIATION:

Calculate the standard deviation for each stock than for the portfolio:

______________________________
/
S.D = / SUMITION (ri -Avg retur n
/ n-1

FOR STOCK A: SUBSITUTE THE VALUES :

___________________________________________________________________
/
= / (-24.25-17.276) + (18.50-17.276)+ (38.67-17.276)+(14.33-17.276)+(39.13-
17.262)
/ 5–1

S.D =25.93%
FOR STOCK B: SUBSITUTE THE VALUES :

_____________________________________________________________________
/
S.D = / (23.963-5.50)2 + (23,968-26.73)2+ (23.968-48.25)2+(23.968-
(4.50)2+(23.968-43.86)2
/ 5–1

_________________________________________________________
/
S.D = / 341.06 + 7.628 + 589.61 + 816.42 + 393.691
/ 4

S.D =23.18
%

FOR PORTFOLIO:_

__________________________________________________________________
/
S.D =/ (-9.375-20.62)2 + (22.615-20.62)2+ (43.46-20.62)2+(4.915-20.62)2+(41.495-
2
20.62)
/ 5–1

________________
/
S.D = / 2017.38
/ 4

S.D =22.95%

PART C:

Looking at the annual return on the two stock I.e A and B,The correlation of stock is
closer to +0.8.

PART D:

If more randomly selected stocks has been included in the portfolio ,roe p would
have in the vicinity of 20%
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