PRESENTATION ON

PORTFOLIO MANAGEMENT

PREPARED BY
H M TARIQUR RAHMAN
MBA 13
ID: 201321006

Army Institute of Business Administration (AIBA), Sylhet

The risk-free rate is 6% while the market portfolio’s
expected return is 14%.If the standard deviation of the
market portfolio is 15%, what is the equilibrium
expected return on a security that has a covariance
with the market portfolio of 198?
Here,

β=COVm/σ2m

= 198/152

Here,

RM=14%

Rf= 6%

β= .88

= .88 So,

Equilibrium expected return is-

R= Rf+ β(RM-Rf)

= 6%+.88[(14%-6%]

= 13.04%
 
The expected return for the market is 12%, with a standard deviation
of 21%. The expected risk free rate is 8%. Information is available
for 5 mutual funds are as follows (all efficient):

Mutual Funds SD(%)

Affiliated 14
Omega 16
Ivy 21
Value Line Fund 25
New Horizon 30
 
Calculate the slope of CML.
Calculate the expected return for each portfolio.

Here,
RM=12% or .12
RF= 8% or .008
βM= 21% or .21
Slope of SML = (RM-RF)/βM
= (0.12 - 0.08) / 0.21
= 0.04 / 0.21
= 0.1905
 
Portfolio Return: Affiliated
E(Rport)=RFR+σport[(E(RM)-RFR)/σM)
=8%+14%[(12%-8%)/21%]
=10.6%

Portfolio Return: Omega

E(Rport)=RFR+σport[(E(RM)-RFR)/σM)
= 8%+16%[(12% 8%)/21%
=11.05%

Portfolio Return: Ivy E(Rport)=RFR+σport[(E(RM)-RFR)/σM)

=8%+21%[(12%-8%)/21%]
=12%

 
Portfolio Return: Value Line Fund
E(Rport)=RFR+σport[(E(RM)-RFR)/σM)
=8%+25%[(12%-8%)/21%]
=12.76%

Portfolio Return: New Horizon

E(Rport)=RFR+σport[(E(RM)-RFR)/σM)
=8%+30%[(12%-8%)/21%]
=13.71%

 
If the following assets are correctly priced on the SML,
what is the return of the market portfolio? What is
risk-free rate? E ( R1)=9.40%, E(R2)= 13.40% , β1=.80,
β2=1.30

For asset 1:

Here,

Ri= Rf+ βi(RM-Rf)

.094= .06+.80(RM-.06)

So, RM= 10.25%

For asset 2:

Here,

Ri= Rf+ βi(RM-Rf)

.134= .06+1.3(RM-.06)

So, RM= 11.69%

 
Given that expected return on the market portfolio is
10%, risk-free rate is 6%, beta of stock A and B are.85
&1.20 respectively. (a) Draw the SML (b) What is the
equation of the SML? (c)What are the equilibrium
expected return for A&B?

 
Answer: (b)

Here,

Ri= Rf+ βi(RM-Rf)

Where:

Ri = expected return of the security

Rf = risk-free rate

RM = expected return of the market portfolio

βi = beta of the security

Answer: (c)

Here,

RA= Rf+ βi(RM-Rf)

= 0.06 + .85 (0.10 - 0.06)

= .094 or 9.4%

RB= Rf+ βi(RM-Rf)

= 0.06 + 1.2(0.10 - 0.06)

= .108 or 10.8%
 
Given the following information:
E(RM) =12%, SDM =21%, RF = 8%, PAM=0.8, PBM=0.6, σA=25%,
σB= 30%
Calculate the beta for stock A and stock B.
Calculate the required return for each stock

β = Cov(Ri, Rm) / Var(Rm)

Where:
Cov(Ri, Rm) = covariance between the stock's returns and the market
returns
Var(Rm) = variance of the market returns
For stock A:
βA = Cov(RA, Rm) / Var(Rm)
= 0.8 x 21% x 25% / (21%)2
= 0.95
For stock B:
βB = Cov(RB, Rm) / Var(Rm)
= 0.6 x 21% x 30% / (21%)2
= .86
 
Here,
E(Ri) = Rf + βi * (E(Rm) - Rf)
Where:E(Ri) = required return of the stock
Rf = risk-free rate; βi = beta of the stock
E(Rm) = expected return of the market portfolio
For stock A:
E(RA) = 0.08 + 0.95(0.12 - 0.08)
= 0.118 or 11.8%
For stock B:
E(RB) = 0.08 + .86(0.12 - 0.08)
= 0.1144 or 11.44%

 
THANK YOU