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Published byMaryann Warner Modified over 9 years ago
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QUIZ 1: PORTFOLIO THEORY 2015 SHANGHAI FINC 5000 class B WARREN BUFFET’S PORTFOLIO
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Quiz 1: Portfolio Theory SCENARIO ProbabilityAdobe INC.Apple INC. Booming ECONOMY30%70%150% Normal ECONOMY40%16%40% ECONOMIC Recession30%-25%-50% For a portfolio with 60% in Adobe and 40% in Apple, please calculate the Expected Return (E(RP) and STDEV(RP) of the portfolio. The return details are given in the following:
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Step 1: Calculate E(return) of each scenario: weight(adobe)*ER(adobe)+weight(appl)*ER(appl) Step 2: Prob(scenario)*Step 1 Step 3: Calculate; Expected return of the portfolio=sum(step 2) Step 4: Calculate Deviation from the mean: Step 1-Step 3 Step 5: Square the Deviation: (Step 4)*(Step 4) Step 6: Prob(scenario) * Step 5 Step 7: Calculate Variance of the Portfolio = Sum(Step 6) Step 8: calculate STDEV of the Portfolio = Square root of (Step 7) scenarioProbability E(r) Adobe E(r) Apple Step 1Step 2Step 3Step 4Step 5Step 6 Step 7 Var(Rp) Step 8 STDEV(Rp) Boom30%70%150%102%31%72%51.4%15.4% Norm40%16%40%25.6%10%-5%0.2%0.1% Recess30%-25%-50%-35%-11%-65%42.7%12.8% weight60%40%30%28.3%53%
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