50% investment in stock X and 50% investment in stock Y 80% investment in stock

Question

50% investment in stock X and 50% investment in stock Y 80% investment in stock X and 20% investment in stock X Assume a family member is approaching retirement. Her retirement assets include her house and Social Security payments. She also has a 401(k) plan representing one-third of her assets. If she want to own some foreign securities and decides to invest 75 precent of her 401(k) assets accordingly, what percentage of her total assets will this constitute? Closing prices for SilTech and New Mines for the year 1997-2012 are shown below. Calculate the total returns for each stock for the years 2012-1998 to 3 decimal places. Note that the price for 1997 is used to calculate the total return for 1998. Assume that similar returns will continue in the future (i.e., average returns = expected returns). Calculate the covariance between these two stocks bsed on the 15 years of returns. Using the 11 different proportions that SilTech could constitute of the portfolio rangingfrom 0% to 100% in 10% increments, calculate the portfolio variance, standard deviation and expected return. Plot the tradeoff between return and risk for these two stocks based on the calculation in Use the XY scatter diagram in Excel.

Explanation / Answer

Returns for Siltech:

Returns for Newmines:

Formula used for calculating returns = (closing price - opening price)/opening price

b. average for siltech = average of all returns from 1997 to 2012 using avearge function = 48.377%. Variance using var function = 88.601% or 0.8860. standard deviation using stdev function = 0.9413 or 94.13%

average for newmine = 10.021%. variance = 0.1218 or 12.18%. standard deviation = 0.3491 or 34.91%

c. calculation of covariance using covar formula:

Year Siltech Returns 2012 198.080 133.475% 2011 84.840 18.014% 2010 71.890 123.261% 2009 32.200 201.216% 2008 10.690 49.302% 2007 7.160 -34.612% 2006 10.950 47.177% 2005 7.440 -71.051% 2004 25.700 151.222% 2003 10.230 211.890% 2002 3.280 -37.165% 2001 5.220 -34.504% 2000 7.970 -17.324% 1999 9.640 35.203% 1998 7.130 -50.452% 1997 14.390

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