Description

Portfolio Management II
December 2023 Examination

1. The following table gives an analyst’s expected return on two stocks for particular
market returns.
Market Return Aggressive Stock Defensive Stock
6 % – 4 % 7 %
30 % 50 % 15 %
a. What is the ratio of the beta of the aggressive stock to the beta of the
defensive stock? Interpret the result. (3 Marks)
b. If the risk-free rate is 8 % and the probability that the market return is likely to be 6
% and 30 % is 6:4, what is the market risk premium? Interpret the result. (3 Marks)
c. What is the alpha of the aggressive stock? Interpret the result. (4 Marks) (10
Marks)
Ans 1.
Introduction
The expected return is the loss or profit an investor anticipates on an investment with the
historical prices of going back (RoR). It’s determined by multiplying ability outcomes
through the chances of them occurring and then totaling these results.
• The expected return is the income or loss an investor or trader can anticipate receiving
on an investment.
• An expected go-back is determined by multiplying potential outcomes by using the
odds of them taking place and then totaling these results.
• expected returns can not be expected.
• The anticipated return for a portfolio containing various investments is the weighted
It is only half solved
Get Complete assignment help from us
Price – 290/ assignment
NMIMS Complete Solved Assignments
Available for session DEC 2023
The last date is 29th NOV- 2023
Our assignment help is affordable
Our goal is to provide you with the best and the cheapest
services
Contact No – 8791514139 (WhatsApp)
OR
Mail us- [email protected]
Our website – www.assignmentsupport.in
Online buy – https://assignmentsupport.in/shop/
2. Assuming the role of a risk seeking investor, identify 5 Stocks from NIFTY50 and
create a portfolio. Substantiate the rationale for the choice of 5 assets and asset
weight allocations along with risk and return measures. (10 Marks)
Ans 2.
Introduction
Risk-seeking is accepting vast danger in finance, regularly related to uncertainty and price
volatility in trading or funding, in exchange for the capacity for maximum returns. Danger
seekers are more inclined toward earning capital profits from property than capital upkeep
from lower-risk assets.
Risk-seeking may be contrasted with chance-averse.
• Chance-seeking refers to a person inclined to accept extra great economic uncertainty
in alternate for higher returns.
• Danger-seeking confers the most chance tolerance or the amount of potential losses an
3. a. The table below presents information on four securities whose active returns are
uncorrelated, and forecasts are independent from year to year. Assuming the
benchmark portfolio to be equally weighted across these four securities and forecasted
benchmark return at 15%, compute the portfolio weights and total expected returns for
each of the four securities. Also, compute the active return and total expected return of
the managed portfolio and assess the active risk of the managed portfolio. (5 Marks)
Security
Expected Active
Return
Active Return
Volatility
Active
A 5% 20% 2W5.e0ig0h%t
B 10% 40% 12.50%
C -5% 20% -25.00%
D -10% 40% -12.50%
Ans 3a.
Introduction
Active return is the extra return that results from an investment manager’s trying to pick
suitable investments. It equals the difference between the portfolio return and the benchmark
return. Benchmark return is the go-back that could be earned by passive funding. The goback
on an index represents the investment universe that corresponds to the selected
investment method, i.e., a broad market index such as the S&P 500 or an index representing
3. b. Using the information from the above question (3.a.) verify the basic fundamental
law of active management of portfolio and compute the information ratio. Assume IC =
25% and BR = 4. (5 Marks)
Ans 3b.
Introduction
The information ratio (IR) measures an investment supervisor’s skill in generating returns
above a benchmark or an index while considering the volatility of the returns. It compares the
return on investment or portfolio to the returns of a version or an index.
The primary motive of the facts ratio (IR) parameter is to evaluate the investment manager’s