This Assignment is Designed to Test Student’s Knowledge of the Concept of Risk and return: Principle of Finance Assignment, NUS, Singapore

Assignment (Individual) This assignment is designed to test student’s knowledge of the concept of risk and return. Students are expected to perform computations to evaluate the efficiency of portfolios.

Question

You are provided the returns in percentage for shares A and B:

Year 2015 2016 2017 2018 2019 2020

Share A -9 16 5.5 -5 5 13

Share B 15 9 -10 4 -6 10.5

Required

a. Compute the average (expected) return and volatility (standard deviation) for shares A and B.

b. Determine the covariance and the correlation coefficient between returns on A and returns on B.

c. Calculate the expected return and standard deviation for a portfolio P of share A and share B, where the proportion invested in A is 50.28%. d. A second portfolio Q also comprises share A and share B, where the proportion invested in A is 10.00%.

Discuss which portfolio is efficient.