Fundementals of finance - Math Problem Example

Only on StudentShare

Extract of sample
Fundementals of finance

The same goes for stock b. By adding the product of the proportion and the return of these two stocks that form the combination, we get the portfolio return of 24.4%
In order to get the risk of the combination of projects a and b, we use the formula for 'p=sqrt (wa2'a2 + wb2'b2 + 2wawb'ab'a'b), where we get the products of the variances of the proportions and the individual risks, adding them and adding them to the last figure which incorporates their correlation. With projects a and b's correlation of 0.7, we get a risk of .081191.
By applying the same formula for projects b and c, we get the portfolio return of 29.2%, higher than the combination of projects a and b. The portfolio standard deviation on the other hand is 0.119917-the higher risk accompanying the higher expected return for the portfolio.
Combinations of projects b and d have the highest return at 31.6%, with the highest risk of .120216 compared to the other two combinations. This higher return, when expected to have a drastic counterpart in the increase in risk is offset by the correlation of the two projects. ...Show more

Summary

1. Top Choice Investments have given you '2,000,000 to invest for them. The funds can be invested in one or more projects. These projects are all indivisible. The investors require a minimum return of 25% and they are high risk takers.
Portfolio theory suggests that the decision for the combination of stocks in order to maximize the return to the investors should incorporate two measures: the portfolio return of the combination, as well as the portfolio risk which is measured by the standard deviation of the portfolio.
Author : ngislason
Save Your Time for More Important Things
Let us write or edit the math problem on your topic
"Fundementals of finance"
with a personal 20% discount.
Grab the best paper

Related Essays

Finance
This has shown as increase of 15.1% as compared to year 2011 (Next Plc, 2012). Increase in earnings per share reflects an increase in the income earned by NEXT. Increased EPS even in times when UK economy is striving hard to push the growth momentum is reflective of sound efforts by NEXT plc to provide its shareholders capital and revenue benefit.
6 pages (1500 words) Essay
Marine Finance
The marine industry basically comprises of the following sectors: Services – mainly concerned with the shipping industry and tourism Resources- mainly concerned with fishing industry Manufacturing Industry- It is concerned with manufacture of equipments for shipbuilding and oil and gas industries.
6 pages (1500 words) Assignment
BUSINESS FINANCE
Rajaratnam is Sri Lankan who was born in Colombo, Ceylon. He earned an MBA degree from Wharton school (Pennsylvania University) and maintains residence in Connecticut, New York, Florida and George Town.
9 pages (2250 words) Research Paper
Finance
In 2010, LVMH made sales of “20,320” million Euros and by the end of the year it employed over “83,542” workers (Focus on LVMH). This company is included in Euro Next Paris Exchange and ranks among the top companies. Their current strategy is to focus more on promoting their brand so that they can maintain and improve the consumer’s perception about their products.
8 pages (2000 words) Essay
Behavioural Finance
The growth and development of the theories and models of this special area of finance has led to new development in the stock market. Though, individual investors form an insignificant portion of the total stock market investment, the behaviour exhibited by them can have great influence on the performance of the stock market and trading.
6 pages (1500 words) Essay
Find out how much would it cost
to get a custom paper written by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT