SUBJECT: Applied Portfolio Management

ASSIGNMENT: 4

TOPIC: Capital Allocation Line (CAL)

SUBMITTED TO: Dr. Nasir Malik

SUBMITTED BY:

Muhammad Waqas Farooq (L1F20MSBA0024)

Badar Bashir (L1F20MSBA0002)

Sana Ameer (L1F20MSBA0028)

 SECTION: A1

Portfolio of Different Companies of KS100 Index

1 2 3

Seria Description ALFALAH BANK FAUJI FOOD PAKISTAN PETROLEM

l NO. LIMITED (ABL) LIMITED LIMLITED (PPL)
(FFL)
1 MEAN 0.02% 0.04% -0.03%

2 EXPECTED RETURN 36.22% 0.04% 33.98%

3 RISK 31 4% 19%
4 CORRELATION -0.136588 0.003568 0.0011654

Calculate Capital Allocation Line (CAL) = kp =?

Formula = kp = w1k1 + w2k2 + w3k3 …………… wnkn

Government of Pakistan T-Bill Rate has = k = 7%

In this way, k1 + k2 + k3 = k =7 is Constant

Rewrite formula = kp = w1k + w2k + w3k

Average weight = w1 + w2 + w3 =?

Working 1
Average weight = w1k =?

Calculate of standard deviation of ABL1/FFL2 =?

W1 = (1-Standard deviation of ABL1/Standard deviation of FFL2)

W1 = {1 – (31/4)}7

W1 = (1-7.75)7

W1 = (-6.75)7

W1 = -47.25
 Working 2

Average weight = w2k =?

Calculate of standard deviation of ABL1/PPL3 =?

W2 = (1-Standard deviation of ABL1/Standard deviation of PPL3)

W2 = {1 – (31/19)}7

W2 = (1-1.631)7

W2 = (-0.631)7

W2 = -4.417

Working 3

Average weight = w3k =?

Calculate of standard deviation of FFL2/PPL2 =?

W3 = (1-Standard deviation of ABL1/Standard deviation of PPL3)

W3 = {1 – (4/19)}7

W3 = (1-0.210)7

W3 = (0.79)7

W3 = 5.53

Formula = kp = w1k1 + w2k2 + w3k3 …………… wnkn

= kp = (-47.25) + (-4.47) + (5.53)

Kp = -46.19