Scribd Logo
Upload

Welcome to Scribd!

  • 25 views

    Tutorial 5 Solutions

    Uploaded by

    marvinali
    The document is a solutions guide for a corporate finance tutorial with 4 questions. Question 1 defines expected return and variance for a single asset. Question 2 calculates expected return, standard deviation, and portfolio variance for 2 assets. Question 3 finds expected return, standard deviations and portfolio variance for a 3-asset portfolio. Question 4 examines the impact of correlation on portfolio variance and standard deviation for a 2-asset portfolio under differing correlation assumptions.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Tutorial 5 Solutions

    Uploaded by

    marvinali
    25 views3 pages
    The document is a solutions guide for a corporate finance tutorial with 4 questions. Question 1 defines expected return and variance for a single asset. Question 2 calculates expected return, standard deviation, and portfolio variance for 2 assets. Question 3 finds expected return, standard deviations and portfolio variance for a 3-asset portfolio. Question 4 examines the impact of correlation on portfolio variance and standard deviation for a 2-asset portfolio under differing correlation assumptions.

    Original Description:

    finance tutorial

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document is a solutions guide for a corporate finance tutorial with 4 questions. Question 1 defines expected return and variance for a single asset. Question 2 calculates expected return, standard deviation, and portfolio variance for 2 assets. Question 3 finds expected return, standard deviations and portfolio variance for a 3-asset portfolio. Question 4 examines the impact of correlation on portfolio variance and standard deviation for a 2-asset portfolio under differing correlation assumptions.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    25 views3 pages

    Tutorial 5 Solutions

    Uploaded by

    marvinali
    The document is a solutions guide for a corporate finance tutorial with 4 questions. Question 1 defines expected return and variance for a single asset. Question 2 calculates expected return, standard deviation, and portfolio variance for 2 assets. Question 3 finds expected return, standard deviations and portfolio variance for a 3-asset portfolio. Question 4 examines the impact of correlation on portfolio variance and standard deviation for a 2-asset portfolio under differing correlation assumptions.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

     

    THE UNIVERSITY OF HONG KONG


    FACULTY OF BUSINESS AND ECONOMICS
    FINA1310HIJ – Corporate Finance
    2nd SEMESTER, 2017-2018
    Tutorial 5 – Solutions

    Question 1 (Expected Return and Variance for an asset)


    What is the expected return?

    E r pr

    E r 0.25 0.15 0.50 0.08 0.15 0.04 0.10 0.03


    0.0805

    What is the variance?

    σ p r E r

    σ 0.25 0.15 0.0805


    0.50 0.08 0.0805
    0.15 0.04 0.0805
    0.10 0.03 0.0805
    0.0026

    What is the standard deviation?


    σ σ
    √0.0026
    . %

     
     

    Question 2 (Portfolio Return and Variance)


    What are the expected return and standard deviation of each asset?
    E R 0.4 30% 0.6 10%
    %
    E R 0.4 5% 0.6 25%
    %

    σ p r E r

    σ 0.4 30% 6% 0.6 10% 6%


    σ 003840
    σ √0.03840
    σ .

    σ 0.4 5% 13% 0.6 25% 13%


    σ 0.0216
    σ √0.0216
    σ .

    What are the expected return and standard deviation for the portfolio?
    E R 50% 6% 50% 13%
    . %

    σ p R E R

    σ 0.4 12.5% 9.5% 0.6 7.5% 9.5%


    σ 0.0006
    σ √0.0006
    σ .

     
     

    Question 3 (Portfolio Return and Variance)


    E R 0.25 15% 0.6 10% 0.15 5%
    10.50%

    E R 0.25 10% 0.6 9% 0.15 10%


    9.40%

    $6000 $4000
    E R 10.5% 9.4%
    $10000 $10000
    . %

    σ p R E R

    $6000 $4000
    R 15% 10%
    $10000 $10000
    13%

    $6000 $4000
    R 10% 9%
    $10000 $10000
    9.6%

    $6000 $4000
    R 5% 10%
    $10000 $10000
    7%
    σ 0.25 13% 10.06% 0.60 9.6% 10.06% 0.15 7% 10.06%
    σ 0.000369
    σ .

    Question 4 (Portfolio Return and Variance)


    (a) E(Rp) = 0.6 × 15% + 0.4 × 20% = 17%
     P2  0.6 2  0.2 2  0.4 2  0.22 2  2  0.6  0.4  0.5  0.2  0.22  0.032704
     P  18.08%
    (b) ρ = 0
     P2  0.6 2  0.2 2  0.4 2  0.22 2  0.022144
     P  14.88%
    ρ = -0.5
     P2  0.6 2  0.2 2  0.4 2  0.22 2  2  0.6  0.4  0.5  0.2  0.22  0.011584
     P  10.76%
     

    You might also like