Assessment 2 aims to provide students with an opportunity to analyse various investment alternatives based on therespective risk and return so as to choose the most appropriate investment opportunity. You are expected to read beyondtextbooks and able to apply the knowledge gain from real life examples either from your working environment or/and casestudies read, and are able to demonstrate your competence in the areas indicated in the questions. You are encouraged toprovide specific in-depth comments instead of general comments.Instructions to students:Part I (20 marks)a. Download stock prices for any two different companies ? 5 years of monthly closing prices for each company. You canuse any database to obtain the prices e.g. datastream, yahoo finance (click the Investing tab followed by the HistoricalPrices tab) etc. Use data from December 2008 to December 2013 to generate average monthly returns. Calculate theannualised mean return, standard deviation and correlation of the stocks. (5 marks)b. Use investment proportions for the two stocks ranging from 0% to 100% using intervals of 5%. Tabulate the investmentopportunity set of the two stocks. (2 marks)d. Calculate the expected return and standard deviation of this minimum variance portfolio (MVP). Plot the investmentopportunity set of the two stocks and the minimum variance portfolio on a graph. Identify the MVP and efficient frontierconsisting of the portfolios made up of these two assets. Label them clearly on the graph. (5 marks)e. Discuss in your report diversification referring to the efficient frontier and expected return and standard deviationof the minimum-variance portfolio in your answer. (5 marks)Part II (10 marks)Consider the two securities listed below:? Risky security: E(R) = 10%, ? = 20%.? Risk-free security: Rf = 4.5%.You wish to form a portfolio combining the risky security and the risk-free security.a. What weights would you need to place in the risky and risk-free securities if you are able to tolerate a risk levelof 25%? What is the expected return of this portfolio? (2 marks)b. Draw the capital allocation line (CAL). Label the points and the axes clearly. What is the reward-to-variabilityratio? (3 marks)Now, suppose that instead of one risky security and one risk-free security, you can invest in two risky securities asfollows: Security 1: E(R1) = 8%, ?1 = 12%; Security 2: E(R2) = 13%, ?2 = 20%, and the correlation coefficient , ?12,between them is 0.3.c. Find the expected return and the standard deviation of the minimum-variance portfolio (MVP) on the investmentopportunity set. Draw a tangent from the risk-free rate to the investment opportunity set. (5 marks)?????????????????????????????????

Welcome to Vision Essays! For over 10 years we have been helping students like you write, research, and generate ideas for their research papers, essays, term papers, dissertations, editing, resumes, and any other type of work your learning institution may assign you.

We can write any paper and have flexible payment plans with a minimum deadline of 6 Hrs.

Type of paper Academic level Subject area
Number of pages Paper urgency Cost per page:
 Total: