Calculate the standard deviation , Financial Management

The attached file (MFR & FFM Ass Returns Data.xls) gives 132 months returns for thirty securities drawn from the FT ALL share index as well as the returns on the FT ALL share index

a)   Choose any ten securities at random and form an equally weighted portfolio of these securities

i.  Choose any five securities at random and determine the average returns for each company for the 132 months along with the variance and standard deviation of these returns. Next construct an equally weighted portfolio made up of the five securities, and determine the series of monthly returns. On this basis determine the average return for the portfolio and the associated variance and standard deviation.  The averages, variances, and standard deviations can be derived using the relevant Excel functions. Utilise the Excel specification for population variance and standard deviation - STDEVP and VARP - in the calculations. Explain the discuss the relationship between the average returns, average variance, and average standard deviation for the five securities and the average returns, variance, and standard deviation for the portfolio.

ii.  Calculate the co-variances for each pair of securities in the portfolio and on the basis of this information, and using the relevant portfolio equations, calculate the standard deviation of the returns on the portfolio.  Compare your results to those obtained for the portfolio in part i above. Comment and explain your findings.

b)  Choosing securities at random form equally weighted portfolios of 2, 5, 10, 15 and 20 securities determine the standard deviation of these portfolios and plot the standard deviations against the number of securities in the portfolios.  Comment on your results and compare these with the results of the studies of naïve diversification. (In undertaking this analysis you can derive the results for each of the portfolios using the Excel spreadsheet - there is no need to employ the portfolio equations and estimates of co-variances etc.                                                                           

c)   i.   Determine the beta of one security by regressing the returns for the share on the returns for the FT ALL Share Index (the last column in the spreadsheet).  Comment on what the value of the beta (the slope coefficients in the regression) indicates.

ii.  Discuss the primary determinants of a share's beta.  (This part of the questions relates to betas in general and does not require you to focus on the company analysed in part (i)

Posted Date: 2/22/2013 4:17:15 AM | Location : United States







Related Discussions:- Calculate the standard deviation , Assignment Help, Ask Question on Calculate the standard deviation , Get Answer, Expert's Help, Calculate the standard deviation Discussions

Write discussion on Calculate the standard deviation
Your posts are moderated
Related Questions
You are a member of the ALM Committee (ALCO) of ANZ Bank. A visiting member has some queries relating to the general framework of the ALM and interest rate risk impact on the incom

Explain the Cash and cash equivalents Cash and cash equivalents include: Bank and cash balances Short term investments that are highly liquid and can be converted

Accountants should not reverse the adjustment of prepaid insurance to recognize insurance expense at the end of the accounting period because: Answer a. . doing so results in

Profit maximisation criterion Profit maximisation criterion is unsuitable and inappropriate as an operational objective of financing, investment and dividend decisions of a fi

Evaluate the importance of leverages in financial management of small scale companies


R eceipt of bids and bid opening We discussed how to prepare the bids and to publish them in the earlier sub section. Now let us see how to receive and open bids. To receiv

Q. Find Capital allowances and associated tax benefits? It is suitable to use the after-tax cost of borrowing as the discount rate since Doe Ltd is clearly in a tax-paying situ

Short-term funds having a maturity of 15 days and over are categorized as term money. Banks access this term money route to bring greater stability in their short

The option features embedded in many bonds and fixed-income securities have made the binomial interest rate tree approach a valuable model for pricing debt. Binomial