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1-2 pages with the references. Roger has just been hired as chief portfolio officer of Bear United Capital.As part of this new position, he has been asked to assemble a model portfolio from a set of...

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1-2 pages with the references.

Roger has just been hired as chief portfolio officer of Bear United Capital.As part of this new position, he has been asked to assemble a model portfolio from a set of assets.The assets in the model portfolio include the following:

Weight

Expected Return

Actual Return

Stock A

0.2

0.05

0.09

Stock B

0.1

0.07

0.04

Stock C

0.25

0.12

0.14

Stock D

0.05

0.02

0.04

Stock E

0.1

0.04

0.01

Stock F

0.3

0.35

-0.02


Using the above assets from the model portfolio and their associated values, calculate the following:
  • The rate of return of the portfolio
  • The expected rate of return on the portfolio
  • Discuss your perception of the two returns and what is driving each in detail
  • Which return is a better measure of return on a portfolio, and when shouldyou use each?
Answered Same Day Dec 23, 2021

Solution

David answered on Dec 23 2021
136 Votes
Roger has just been hired as chief portfolio officer of Bear United Capital. As part of this
new position, he has been asked to assemble a model portfolio from a set of assets. The
assets in the model portfolio include the following:

Weight
Expected
Return
Actual Return
Stock A 0.2 0.05 0.09
Stock B 0.1 0.07 0.04
Stock C 0.25 0.12 0.14
Stock D 0.05 0.02 0.04
Stock E 0.1 0.04 0.01
Stock F 0.3 0.35 -0.02
Using the above assets from the model portfolio and their associated values, calculate the
following:
ï‚· The rate of return of the portfolio
Rate of return
Stock Weight
Actual
eturn Weight*Actual
A 0.2 0.09 0.018
B 0.1 0.04 0.004
C 0.25 0.14 0.035
D 0.05 0.04 0.002
E 0.1 0.01 0.001
F 0.3 -0.02 -0.006
Rate of return of
portfolio` 0.054
Answer: Rate of return of portfolio = 0.054 (or) 5.4%
ï‚· The expected rate of return on the portfolio
Expected Rate of return
Stock Weight Return Weight* Exp.Rt.
A 0.2 0.05 0.01
B 0.1 0.07 0.007
C 0.25 0.12 0.03
D 0.05 0.02 0.001
E 0.1...
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