Capital Market and Portfolio Management June 2018 Assignment

29 Mar

Capital Market and Portfolio Management

1. The following data shows the return of ABC Ltd and the market:

Year Return on ABC(%) Return on Market (%)
1 40 35
2 35 28
3 32 34
4 28 30
5 25 24

Calculate the beta of ABC Ltd and interpret.

2. The details of portfolio of Mr. Singh are:

Stock Expected Return Standard Deviation Weight
Wipro 15% 12% 0.4
Infosys 18% 20% 0.6

Covariance of stock Wipro and Infosys is 0.0064.

Calculate return and total risk of the portfolio.

3. Nisha has just completed her MBA and has joined an investment management firm as an analyst. On the first day of her job, her manager gave her data of two portfolios and asked her to suggest which one is a better portfolio.

Observed Return Beta
Portfolio Alpha 18% 1.5
Portfolio Beta 15% 0.8

Risk-free rate is 8.5%, Return on the market portfolio is 15%, Standard Deviation of the market is 8%.

a. Suggest which portfolio has outperformed the market on the basis of Jensen index.

b. Suggest which portfolio is better on the basis of systematic risk using Treynor ratio.

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