Reference no: EM132297219

Assignment 1 - LSE Real Estate Economics and Finance - Activity

Learning outcome: Compare the returns of a diversified and non-diversified portfolio of assets.

Questions -

Question 1 - You are provided with five possible portfolios to select. The portfolios are made up of a combination of three assets: Share A, Share B, and REIT A.

The weightings of each asset per portfolio are shown in Table 1.

A portfolio risk and return calculator is provided for you to calculate the portfolio return, portfolio standard deviation, and standard deviation of the portfolio's excess return given a specific portfolio weighting.

Table 1: Potential portfolio investments.

1.1 Use the asset weightings provided in Table 1 and the portfolio risk and return calculator to calculate the following:

• Portfolio return (rounded to the nearest two decimal places)
• Portfolio variance (rounded to the nearest two decimal places)
• Sharpe ratio (rounded to two decimal places)

1.2 Using your calculations in Question 1.1, calculate the Sharpe ratio for each portfolio, assuming a risk-free rate of 2.6%.

• Portfolio return
• Risk-free rate
• Standard deviation of portfolio's excess return

1.3 Assume that you are a rational investor (i.e. you wish to maximise your return at a given risk level).

Based on the calculations you performed in Question 1.2, which of the five portfolios would you choose to invest in and why? Limit your answer to 20 words.

1.4 Based on the calculations you performed in Question 1.2:

1.4.1 Which portfolio has the lowest Sharpe ratio? Insert the portfolio number into the grey block alongside.

1.4.2 Why do you think the portfolio you identified in 1.4.1 has the lowest Sharpe ratio? Limit your answer to 20 words.

Question 2 - Examine Figure 1 (attached) and answer the questions that follow. Only provide the letter of the portfolio(s) in your answer.

2.1 Which letters correspond to efficient portfolios?

2.2 Provide one example of an inefficient portfolio.

2.3 Which portfolio provides the greatest return for the lowest risk?

Assignment 2 - LSE Real Estate Economics and Finance - Enrichment activity

Learning outcome: Choose asset classes that should be included in a portfolio.

Introductory examples - A simple scenario is put forward and the manual calculations for the following are shown:

• Average return
• Correlation
• Covariance
• Variance
• Standard deviation

Case study -

Excel functions are used to calculate a portfolio average return, portfolio standard deviation, and Sharpe ratio.

You can change the weightings of the assets in the portfolio in the blue cells to see the effect on these metrics.

1. Case study

The annual share prices for a tech company, REIT, and top 500 index were obtained for the period January 2008 to December 2017.

Please note that these companies were selected for illustrative purposes only.

The annual return and standard deviation of the annual return for each of these shares were calculated.

The annual rates for US treasury bonds were obtained for the period January 2008 to December 2017.

The return on a 3-month treasury bond is assumed to be the risk-free rate.

2. Tech company

The annual share prices of a US e-commerce company listed on the Nasdaq were obtained for the years 2008 to 2017.

The annual return on the adjusted share prices was calculated in Column I using the prices in Column G.

The adjusted closing prices are used, as they include both capital appreciation and any distributions (dividends declared).

3. REIT

The annual share prices of a REIT listed on the New York Stock Exchange were obtained for the years 2008 to 2017.

The annual return on the adjusted share prices was calculated in Column I using the prices in Column G.

The adjusted closing prices are used, as they include both capital appreciation and any distributions (dividends declared).

4. Top 500 index

The annual share prices of a top 500 company index listed on the Nasdaq were obtained for the years 2008 to 2017.

The annual return on the adjusted share prices was calculated in Column I using the prices in Column G.

The adjusted closing prices are used, as they include both capital appreciation and any distributions (dividends declared).

5. Bonds

The annual interest rates of US treasury bonds were obtained for the years 2008 to 2017.

Attachment:- Assignment Files.rar