....ViVA 11:31 AM @ 1 7296 Expert Q&A; Done Test 5.(10 marks). You have been ask
ID: 2741895 • Letter: #
Question
....ViVA 11:31 AM @ 1 7296 Expert Q&A; Done Test 5.(10 marks). You have been asked for your advice in selecting the following data Expected ret 2013 2014 2013 12% 14 16 Asset C 12% 14 16 12 You have been sold that you can create two portfolios-one consisting of assets A and B and the other coaststing of assets A and C-by meting equal rtions (VS) mh of two componct- ta a. What is the expected return for each asset over the 3 year period? (2 marks) b. What is the expected return for each of the two poetfolios? (2 marks) c. You are further asked to evaluate the individual stock and recommend which stock is best. Which sdock would you recommend? Why? (4 marks) d Discuss the statement, tot put all your eggs in one basket" (2 marks)Explanation / Answer
Answer :-
a.) Expected Return (Asset - A) = [ 12 + 14 + 16 ] / 3 years
= 42 / 3
= 14 %
Expected Return (Asset - B) = [ 16 + 14 + 12 ] / 3 years
= 42 / 3
= 14 %
Expected Return (Asset - C) = [ 12 + 14 + 16 ] / 3 years
= 42 / 3
= 14 %
b.) Expected Return of Portfolio A and B = ( Expected Return of Asset - A * Weight ) + ( Expected Return of Asset - B * Weight )
= ( 14 * 50% ) + ( 14 * 50% )
= 7 + 7
= 14 %
Expected Return of Portfolio A and C = ( Expected Return of Asset - A * Weight ) + ( Expected Return of Asset - C * Weight )
= ( 14 * 50% ) + ( 14 * 50% )
= 7 + 7
= 14 %
Year Return (A) % Return (B) % Return (C) % 2013 12 16 12 2014 14 14 14 2015 16 12 16Related Questions
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