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Published byNelson Ebanks Modified over 10 years ago
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QUIZ 1: PORTFOLIO THEORY 2015 Shanghai IMBA- A WARREN BUFFET’S PORTFOLIO
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Quiz 1: PORTFOLIO THEORY For a portfolio with 60% in Adobe and 40% in Apple INC., please calculate the Expected Return (E(RP)) and STDEV(RP) of the portfolio if the correlation is 0.7, 0.3, -0.5. Note; your output counts one E(Rp) and three STDEV(Rp)! The return details are given as following: Adobe INC.Apple INC. Expected Return20%46% STDEV37%78% Weight60%40%
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Step 1: E(R portfolio) = w(Adob)*E(R Adob) + w(Appl)*E(R Appl) Step 2: Var(R portfolio) = (w(Adob)*Std(R Adob))^2+ (w(Appl)*Std(RAppl))^2+2*w(Adob)*w(Appl)*Std(R Adob)*Std(R Appl)*Corr(Adob, Appl) Step 3: STDEV(R portfolio)=sqrt(Var R portfolio) ERSTDweightER*Weightw*STD(w*std)^2Corr=0.7Corr=0.3Corr=-0.5 Adobe20%37%60%12%22%4.9%0.70.3-0.5 Apple46%78%40%18%31%9.7%0.70.3-0.5 E(RP)30.4%VAR(RP)24%19%8% STD(RP)49%43%28%
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