Exercises 1.

1 Name: __________________________
Year & Sec: ______________________
Score: __________________________


State the type of scale used to measure the following sets of data:


1. sales

2. investment style of mutual funds

3. Analysts rating of a stock in a portfolio as underweight, market weight, or overweight

4. a measure of the risk of portfolios on a scale of 1 (very conservative) to 5 (very risky).

5. credit ratings for bond issues

6. cash dividends per share

7. hedge fund classification

8. bond maturity in years

9. small stock return

10. selling price




Exercise 1.2 Name: __________________________
Year & Sec: ______________________
Score: __________________________


The table below gives the deviations of a hypothetical portfolios annual total returns (gross of
fees) from its benchmarks annual returns, for a 12-year period.

Portfolios Deviations from Benchmark Return

Year Deviation from
benchmark (%)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-5.14
1.62
1.48
-1.59
4.37
-0.55
-0.88
-3.19
-2.11
-1.49
4.54
2.04

a. Make a frequency distribution for the portfolios deviations from benchmark return using
k = 5.
b. Calculate the frequency, cumulative frequency, relative frequency and cumulative
relative frequency for the portfolios deviations from benchmark return.
c. Construct a histogram using the data.
d. Identify the modal interval of the grouped data.

Exercise 1.3 Name: __________________________
Year & Sec: ______________________
Score: __________________________


The table below gives the deviations of a hypothetical portfolios annual total returns (gross of
fees) from its benchmarks annual returns, for a 10-year period.

Portfolios Deviations from Benchmark Return

Year Deviation from
benchmark (%)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-5.14
1.62
2.48
-2.59
9.37
-0.55
-9.19
-5.11
-0.49
3.04

a. Calculate the sample mean return.
b. Calculate the median return.
c. Calculate the geometric mean.
d. Calculate the P
25
, P
40
, P
80
.
e. Determine the range, MAD, variance, and standard deviation
f. Determine the semivariance and semideviation.
Exercise 1.4 Name: __________________________
Year & Sec: ______________________
Score: __________________________


The table below gives the deviations of a hypothetical portfolios annual total returns (gross of
fees) from its benchmarks annual returns, for a 12-year period.

Portfolios Deviations from Benchmark Return

Year Deviation from
benchmark (%)
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
-7.14
1.62
2.48
-2.59
9.37
-0.55
-0.89
-9.19
-5.11
-0.49
6.84
3.04

a. Calculate the skewness
b. Calculate the kurtosis.

Exercise 1.5 Name: __________________________
Year & Sec: _____________________
Score: __________________________

An analyst has estimated the following parameters for the annual returns distributions for four
portfolios:

Portfolio Mean Return Variance of Returns Skewness Kurtosis
A 10% 625 1.9 0
B 12% 900 0.0 3
C 15% 1250 -0.75 5
D 18% 2000 1.3 2

The analyst has been asked to evaluate the portfolios risk and return characteristics. Assume
that a risk-free investment will earn 5%.

a. Which portfolio would be preferred based on the Sharpe performance measure?





b. Which portfolio would be the most preferred based on the coefficient of variation?





c. Which portfolio/s is/are symmetric?



d. Which portfolio/s has/have fatter tails than a normal distribution?



e. Which portfolio is the riskiest based on its skewness?





f. Which portfolio is the riskiest based on its kurtosis?





g. Which portfolio will likely be considered more risky when judged by its semivariance
rather than by its variance?




Chapter Review

1. The table below gives the deviations of a portfolios annual total returns, gross of fees,
from its benchmarks annual returns for a 12-year period, 2000-2012.

Year Return (%) Year Return (%)
2000 1.65 2006 -5.36
2001 -2.56 2007 -0.89
2002 2.48 2008 1.56
2003 -0.58 2009 6.42
2004 4.57 2010 0.95
2005 -3.89 2011 -1.57

a. Group the data into 5 intervals.
b. Calculate the frequency, cumulative frequency, relative frequency, and cumulative
relative frequency for the portfolios deviations from benchmark return, given the set
of intervals in the following table:


Return Interval

Frequency

Cumulative
Frequency

Relative
Frequency
Cumulative
Relative
Frequency






c. Construct a histogram using the data.
d. Determine the modal interval, mean return, median return, standard deviation, mean
absolute deviation and semivariance
e. State whether the frequency distribution is symmetric or skewed.
f. Calculate the excess kurtosis.


2. The table below gives the statistics relating to hypothetical 10-year record of four
portfolios.

Portfolio Mean Monthly
Return (%)
Standard
Deviation (%)
Skewness Excess
Kurtosis
A 1.75 5.25 -0.48 -0.24
B 1.84 4.92 1.42 -0.88
C 2.53 3.54 1.95 -0.95
D -0.56 1.48 -1.24 -0.08

a. Which portfolio would be the most preferred based on the coefficient of variation?
b. Which portfolio/s is/are symmetric?
c. Which portfolio/s has/have fatter tails than a normal distribution?
d. Which portfolio is the riskiest based on its skewness?
e. Which portfolio is the riskiest based on its excess kurtosis?
f. Which portfolio will likely be considered more risky when judged by its semivariance
rather than by its variance?