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Div1 P1 P0
Expected Return r
P0 P0
R88 = [1.53 + 20.75-31.25]/ 31.25 = -0.287
Similarly,
R89 = 56.2%,R90 = 123.4%,R91 = 52.2%,R92 = 57% Rm = 1/5
{-28.7+56.2+123.4+52.2+57} = 52%
Firm X
Firm Y
Rate of
-70 0 15 100 Return (%)
^
k HT (-22.%)(0.1) (-2%) (0.2)
(20%) (0.4) (35%) (0.2)
(50%) (0.1) 17.4%
Standard deviation
Variance 2
n
(k
i k̂) 2
Pi
i1
ACC
HLL
Prob.
A B
250
200
150
40000
30000
20000
10000
x100
2002O N D 2003 M A M J J A S O N D 2004 M A M J J A
Prof. Bhaskar Sinha 26 SAPM
Test your Understanding # 1
• Go to :
https://www.nseindia.com/products/content/equit
ies/equities/eq_security.htm
• Select a equity of your choice ; 3 months data ;
download it in excel.
• Find the Historical Returns, std
deviation,Coefficient of Variance .
75% of Co.
Total Risk
Unsystematic
Risk
25% of Co.
Systematic Risk Total Risk
1 5 10 20 30 No. of Assets
Feasible Set
Risk, p
Feasible and Efficient Portfolios
Optimal Portfolio
IA2 Investor B
IA1
Optimal Portfolio
Investor A
Risk p
Optimal Portfolios
I
E(R) 4 I I
3 2
Tangent Portfolio I
1
M = Market portfolio
rf = Risk free rate
E(rM) - rf = Market risk premium
(More...)
Expected
Z
Return, kp
. B
^
kM .
M
kRF
A . Line (CML):
New Efficient Set
M Risk, p
^
^ kM - kRF
kp = kRF + p.
M
Intercept Slope
Risk
measure
^
k
^
kR
M
.
R
. M
R = Optimal
kRF Portfolio
R M Risk, p
(1) (2)
0.158
0.33 -4.00 -12.00% 5.28
-0.036
0.33 -1.00 12.00% 0.33
2 2
Beta = Cov(s,m)/ m = sm cor(s,m)/ m
1. 20*15*0.7/225 = 0.93
2. 0.53
3. -0.33
(ii) g=10%
We obtain, P =Rs. 57.9
w E R
i 1
i i
N
2p
i 1, j 1
wi w j Cov(i, j )
w
i 1
i 1
i 1
2
i , j 1,i j
wi w j ij i j
p 2p