Financial Management- MGT201
Assignment #01 Marks = 20
Portfolio Risk and Return Analysis Diversification is considered as a key to reduce portfolio risk. Investors and portfolio managers try to construct an efficient portfolio with an aim to maximize return by keeping the risk at
minimum level. In this process, the decision to include any security in a portfolio depends on many factors, among which risk and return of securities are at top. Along with risk and return of individual securities, it is also important to consider the correlation among portfolio securities as
the key to diversification is to add un-correlated or negatively correlated securities in the portfolio that can help in reducing the risk. Considering this information about diversification and portfolio construction, you are required to construct equally weighted portfolios of two securities with all possible combination of securities. From the market analysis, following information is available about three securities:
|Security A’s expected return||15%|
|Security B’s expected return||16%|
|Security C’s expected return||10%|
|Risk free rate of return||12%|
- List down all possible portfolios consisting of different combination of 2 securities.
Hint: Portfolio 1 = Security A + Security B
- Calculate expected return for each possible portfolio.
- Calculate beta for each possible portfolio (calculation of individual stock betas is also
- Identify the portfolio that is riskier than market.
NOTE: Formula and calculations are mandatory in each part as these carry marks.
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RULES FOR MARKING
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• It is submitted after the due date.
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• Not submitted as per given format
• It is cheated or copied from other students, internet, books, journals etc.
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Best of Luck!!