Calculate the standard deviation and return of portfolio consisting of 60% of Security A and 40% of Security B.
Capital Market and Portfolio Management
1. Calculate the standard deviation and return of portfolio consisting of 60% of Security A and 40% of Security B.
TABLE BELOW
| Year | Security A return(%) | Security B return(%) |
| 2015 | 10 | 18 |
| 2016 | 12 | 15 |
| 2017 | 9 | 11 |
| 2018 | 10 | 9 |
| 2019 | 5 | 7 |
2. Calculate the return as per CAPM for each of the company’s stock, identify whether they are underpriced, overpriced or correctly priced and advise accordingly. Returns of T- Bill is 9%.
| Stock | Expected Return | Beta |
| Titan | 24% | 1.8 |
| Nestle | 30% | 1.5 |
| Eicher Motors | 12% | 1.2 |
| HDFC | 25.9% | 1.3 |
| Sensex | 22% |
3. An investor was tracking SBI and HDFC mutual funds whose return and beta are as given below:
| Observed Return | Beta | |
| Portfolio SBI | 18% | 0.75 |
| Portfolio HDFC | 25% | 1.25 |
Return on the market portfolio is 11%, while the risk-free return is 8%. Assume standard Deviation of the market to be 7%.
a. Compute the Jensen index for each of the funds and comment which one is better.
b. Compute the Treynor index for each of the funds and comment which one is better.
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