ASSIGNMENT 1

Question 1 (10pt): Your portfolio includes 200 shares of APL and 300 shares of
MSFT, which you just bought at $30 and $50 per share, respectively.
 a. What fraction of your portfolio is invested in APL? In MSFT? 
The investment in APL is: 200*$30 = $6,000
The investment in MSFT is: 300*$50 = $15,000
So the total investment is : $6,000 + $15,000 = $21,000
The weight are $6,000/$21,000 = 0.286 and $15,000/$21,000 = 0.714
 b. If MSFT increases to $60 and APL decreases to $20, what is the return on
your portfolio?
APL: (20-30)/ 30 = -0.03
MSFT: (60-50)/50 = 0.2
So the return on the portfolio is
0.286*(-0.03) + 0.714*0.2 = 0.134
 c. If inflation rate is 3%. What is real return of this portfolio?
1+ Rnorminal 1+0.286
APL: Rreal = −1= −1=0.248
1+ Inflation rate 1+ 0.03
1+ Rnorminal 1+0.714
MSFT: Rreal = −1= −1=0.664
1+ Inflation rate 1+ 0.03

Question 2 (10pt) : What is your realized return? (Compounding investment)

¿ Ending price−beginning price
The formula: HPR= −
Beginning price Beginning price

Date Price Dividend Realized return

January 1 25
March 31 28 1.2 1.2/25 + (28-25)/25 = 0.168

June 30 30 1.2 0.114

Sep 30 27 1.2 -0.06

Dec 31 32 1.2 0.229

Question 3 (15pt): The last five years of return for stock are:
 Year 2015 2015 2017 2018 2019
Return -20% 10% 50% 30% 25%
1. What is the average return of stock in two methods
Arithmetic mean return
R1 + R2 +…+ R n R1 + R2 + R3 + R 4 + R5
R AM = =
n 5
−20 %+10 % +50 %+ 30 %+25 %
=
5
= 19%
Geometric mean return
RGM = √n ( 1+ R1 )∗( 1+ R2 )∗…∗( 1+ Rn )−1
5
= √ ( 1+ R1 )∗( 1+ R 2 )∗…∗( 1+ R5 ) −1
= √5 ( 1−20 % )∗( 1+10 % )∗( 1+50 % )∗( 1+30 % )∗( 1+25 % )−1
= 16.49%
2. What is the variance, standard deviation of stock return
n
1
∂2 = ∑ (Ri−R AM )2
n i=1
1
= ∗((−20−19)2+ (1 0−19 )2 + ( 5 0−19 )2 + ( 3 0−19 )2+ ( 25−19 )2 )
5−1
= 680
SD = √ ∂2= √680=26.08 %
3. If we use arithmetic mean return of period 2015 - 2019 to forecast about the return
of 2020. What is 95% confidence interval for 2020’s return? (Using normal
distribution)

Question 4 (10pt): VN Index is currently at 900 points. There are 4 possible outcomes
of VN index after 1 year:
1. What is expected return of VN Index after 1 year?
 VN Number of
Scenario Ri Pi
index experts forecast
#1 1000 50 (1000-900)/900= 11.1% 50%

#2 950 10 (950-900)/900 = 5.56% 10%

#3 820 30 (820-900)/900 = -8.89% 30%

#4 1100 10 (1100-900)/900 = 22.2% 10%

n
E(R) = ∑ Pi∗Ri
i=1

= 11.1%* 50% + 5.56%*10% + (-8.89%)*30% + 22.2%*10%

= 5.659%
2. What is variance, standard deviation of VnIndex return?
n
2
∂2=∑ Pi∗( Ri−E ( R ))
i=1

= 0.5*(11.1−5.659 ¿¿ 2 + 0.1*( 5.56−5.659 )2

+0.3* (−8.89−5.659 )2+ 0.1∗(22.2−5.659)2
= 105.67
SD = √ ∂2= √105.67=10.28 %
Question 5 (15pt): Investor  forecasts about return of  stock A. There are 4 possible
outcomes with future return of A. 

Scenario Return of stock A Probability

#1 10% 0.3

#2 -20% 0.4
#3 25% 0.2

#4 35% 0.1
1. What is expected return of stock A?
n
E(R) = ∑ Pi∗Ri
i=1

= 0.3* 10% + 0.4*(-20)% + 0.2*25% + 0.1*35%

= 3.5%
2.What is variance, standard deviation of stock A?
n
2
∂2=∑ Pi∗( Ri−E ( R ))
i=1

= 0.3*(10-3.5)2 + 0.4*(-20-3.5)2 + 0.2*(25-3.5)2 + 0.1*(35-3.5)2

= 425.25
3.What is coefficient of variation of stock A?
SD = √ ∂2= √ 425.25=20.62 %
Question 6: (40pt) Excel applications
6.1 (20pt) Everyone has their own stock, your stock  in this link:
https://www.slickcharts.com/sp500
For example, your order in class list is 9, your stock would be Procter & Gamble
Company, stock ticker: PG   
     Then you search this stock ticker “PG” using finance.yahoo.com to collect
historical price of your stock in 1 year (Jan 1 to Dec 31). You can choose any year.
Then, using excel to calculate:
a. Daily return, weekly return, monthly return of your stock
b. Arithmetic mean return of each case
c. Variance, standard deviation of each case. 
d. Explain the meaning of arithmetic mean return, standard deviation of your
stock in each case
6.2. (20pt)
a. Collect the daily historical data for 6 - year period from Jan 1st, 2014 - Dec 31,
2019 of following assets: Your stock, Bitcoin price (Bitcoin USD), GLD -
SPDR Gold Shares .
b. Draw histogram chart of each asset during this period
c. Calculate the arithmetic mean return, standard deviation of each asset
d. Compare risk, return of each asset. Does this result follow your intuition about
level of risk of each asset.