Question

8, 9, 10 PORTFOLIO ANALYSIS:

YEAR	ASSET HOTDOGS	BURGERS	ASSET WINGS
2016	3%	7%	14%
2017	7%	9%	13%
2018	10%	12%	12%
2019	12%	16%	11%
2020	13%	15%	10%

ALTERNATIVE	INVESTMENT
8	60% OF ASSET BURGERS AND 40% OF ASSET WINGS
9	55% OF ASSET HOTDOGS AND 45% OF ASSET BURGERS
10	33% OF ASSET HOTDOGS, 33% OF ASSET BURGERS AND 34% OF ASSET WINGS

PLEASE CALCULATE THE EXPECTED RETURN AND STANDARD DEVIATION FOR EACH OF THE THREE PORTFOLIO ALTERNATIVES.

Answer 1

In the questin it has given, 5 years return of 3 stocks namely Asset hotdogs, Burgers, Asset Wings.

Hence we have to calculate their Average Return on each portfolio..

Asset Hotdogs- (3+7+10+12+13)/5 = 45/5 = 9%.

Asset Burgers- (7+9+12+16+15)/5 = 59/5 = 11.8%

Asset Wings- (14+13+12+11+10)/5 = 60/5 = 12%

Caluculation of Average Deviation on each portfolio-

Formula = {(Return₁- Average Return)² + (Return₂- Average Return)²........]^1/2

Asset Hotdogs= [(3-9)²+(7-9)²+(10-9)²+(12-9)²+(13-9)²/5]^1/2 = [13.2%]^1/2 = 3.63%

Asset Burgers- [(7-11.8)²+(9-11.8)²+(12-11.8)²+(16-11.8)²+(15-11.8)²/5]^1/2 = [11.76%]^1/2 = 3.42%

Asset Wings- [(14-12)²+(13-12)²+(12-12)²+(11-12)²+(10-12)²/5]^1/2 = [2%]^1/2 = 1.41%

Formula-

Expected Return E(R) = W₁*R₁+W₂*R₂+ ...........+W_n*R_n

Alternative-8

Given, Weighted to Asset Burger- 60% and to Asset Wings- 40%

Expected Return =(Weight of Asset Burger * Return of Asset Burger) + ​(Weight of Asset Wings * Return of Asset Wings)

= (60%*11.8%) + (40%*12%) = 7.08%+4.80%= 11.88%

SD= (Weight of Asset Burger * SD of Asset Burger) + ​(Weight of Asset Wings * SD of Asset Wings)

= (60%*3.42%) + (40%*1.41%) = 2.052% + .564% = 2.616%

Alternative-9

Given, Weighted to Asset Burger- 45% and to Asset Hotdogs- 55%

Expected Return =(Weight of Asset Burger * Return of Asset Burger) + ​(Weight of Asset Hotdogs * Return of Asset hotdogs)

=(45%*11.8%)+(55%*9%) = 5.31%+4.95% = 10.26%

SD = (Weight of Asset Burger * SD of Asset Burger) + ​(Weight of Asset Hotdogs * SD of Asset hotdogs)

= (45%*3.42%)+(55%*3.63%) = 1.539% + 1.9965% = 3.536%

Alternative-10

Given, Weighted to Asset Hotdogs- 33%, Asset Burger- 33 % and to Asset Wings- 34%

Expected Return = ​(Weight of Asset Hotdogs * Return of Asset hotdogs) + (Weight of Asset Burger * Return of Asset Burger) + (Weight of Asset Wings * Return of Asset Wings)

= (33%*9%)+(33*11.8%)+(34%*12) = 2.97%+ 3.894% +4.08% = 10.944%

SD= (Weight of Asset Hotdogs * SD of Asset hotdogs) + (Weight of Asset Burger * SD of Asset Burger) + (Weight of Asset Wings * SD of Asset Wings)

= (33%*3.63%)+(33*3.42%)+(34%*1.41) = 1.198% + 1.123% + .480% = 2.801