Question

You are an experienced investor in the securities market and you have established an investment portfolio of two blue chips five years ago:  Diamond shares with current market value of $235,000 and Platinum shares with current market value of $355,000.

 

Required:

 

a) If your portfolio has provided you with returns of 10.5%, 12.6%, – 11.5%, 14.5% and 15.2% over the past five years, respectively. Calculate geometric average return of the portfolio for this period.

b) Assume that data in the table below is available for your portfolio performance, calculate the expected return, variance and standard deviation of the portfolio?

Diamond Platinum
Expected return 16.5% 23.5%
Standard Deviation of return 7% 11%
Correlation of coefficient (p) 0.45

 

c) Assume that beta of the Diamond shares in your portfolio is 1.5. The market portfolio expected return is 13.5%, the risk-free rate of return is 7.2%. Calculate expected return of this stock using Capital Asset Pricing Model (CAPM)?

 

d) Assume that you bought 2000 of Platinum shares in your portfolio for a price of $95 each, the dividend paid for this stock is $3/stock each year. Calculate the total return of this investment after five years?

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