Q) Obtain daily, weekly and monthly closing prices of the stock given to you. Get adjusted closing prices. Daily and weekly prices should be for one financial year. Monthly prices should be for 2 years. E.g. FY 2011-2012 and FY 2010-11. Compute annualized return and risk.

OBSERVATION
As can be seen from the observations above, the stock which gives the maximum return also comes with the maximum risk (TATA STEEL). So when it comes to selecting the stock, the following two cases can be considered:

a) Maximum return :- If you are a person who values maximum return and is willing to take the risk for the same, go for TATA STEEL

b) Minimum Risk :- If you are a risk averse person, go for JSP as the risk associated with it is less compared to TATA STEEL

In either case, whether TATA STEEL or JSP, the annualized return is negative.

Q) Construct 10 different portfolios with another company (Correl < 0.70) and compute return and risk for each portfolio. Identify the best portfolio. Construct the minimum variance portfolio.

Company| Correl|
JSP AND TATA STEEL| 0.89|
JSP AND CUMMINS| 0.65|

Initially we compared JSP and TATA STEEL. We found the Correl = 0.89 which was greater than 0.70. Next we compared JSP and Cummins and found the Correl to be 0.65. So we will choose Cummins for making the portfolio.

...the context of a portfolio, the risk of an asset is divided into two parts: diversifiable risk (unsystematic risk) and market risk (systematic risk). Diversifiable risk arises from company-specific factors and hence can be washed away through diversification. Market risk stems from general market movements and hence cannot be diversified away. For a diversified investor what matters is the market...

...Risk and Return
Assignment Questions
1. Suppose a stock begins the year with a price of $25 per share and ends with a price of $35 per share. During the year it paid a $2 dividend per share. What are its dividend yield, its capital gain, and its total return for the year?
2. An investor receives the following dollar returns a stock investment of $25:
$1.00 of dividends
Share price rise of $2.00
Calculate the investor’s total...

...themselves to risk. Your personality and lifestyle play a big role in how much risk you are comfortably able to take on. If you invest in stocks and have trouble sleeping at night, you are probably taking on too much risk. Risk is defined as the chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment.
A financial decision...

...CHAPTER 22
estimating risk and
return on assets
1. WHAT IS RISK?
Risk is the variability of an asset’s future returns. When only one return is possible, there is no risk. When more than one return is possible, the asset is risky. The greater the variability, the greater the risk.
2. RISK – RETURN RELATIONSHIP
Investment...

...a. What are investment returns? What is the return on an investment that costs $1,000 and is sold after 1 year for $1,100?
Investment returns is the expectation of earning money in the future on the amount of money invested. The return is the financial performance of the investment. The return is the difference between the amount invested and the amount you are returned after said investment.
There are two ways to...

...RISK & RETURN
TOPIC 4
Learning Objectives
1. Understand the meaning of risk and return
2. Identify risk and return relationship
3. Discuss the measurement of expected return
and standard deviation
4. Understand portfolio and diversification
5. Distinguish the different types of investment
risks
6. Measurement of return based on CAPM
WRMAS
2...

...expected return on a risky asset.
c. the expected return on a collection of risky assets.
d. the variance of returns for a risky asset.
e. the standard deviation of returns for a collection of risky assets.
PORTFOLIO WEIGHTS
2. The percentage of a portfolio’s total value invested in a particular asset is called that asset’s:
a. portfolio return.
b. portfolio weight.
c. portfolio...

...1. Convert prices to total return (% change in the price) = (Pt – Pt-1) / Pt-1
2. Remove outliers – sort data and remove anything +/- 20%
3. Calculate historical average and historical risk
X-BAR = Σx/n
Calculate the sum of the total return and divide by the number of observations
• Variance = σ2 = Σ(x – x bar) 2 / (n-1)
Fix X-BAR, double click to apply to all dates, get the sum, divide by (n-1)
Risk = σ = √σ =...