Calculation of Expected Return of Cyclon:
|
State |
Return % |
Probability |
Expected Ret.(Ret.*Prob.) |
|
Boom |
18 |
0.15 |
2.7 |
|
Normal |
7 |
0.85 |
5.95 |
|
Expected return of Cyclon |
8.65 |
Calculation of Standard Deviation of
Cyclon:
|
State |
Return % |
Expected Ret. |
Deviation(Ret.-Exp Ret.) |
Deviation2 |
|
Boom |
18 |
2.7 |
15.3 |
234.09 |
|
Normal |
7 |
5.95 |
1.05 |
1.1025 |
|
Total of Deviation2 |
235.1925 |
|
S.D.(=√Total of
Deviation2) |
15.335987 |
Calculation of Portfolio Return in Boom:
|
Boom (Prob 15%) |
|
Company |
Return % |
Weight |
Weighted Return |
|
Cyclone |
18 |
0.4 |
7.2 |
|
Blooper |
12 |
0.6 |
7.2 |
|
Portfolio Return |
14.4 |
Calculation of Portfolio Return in Normal:
|
Normal(Prob 85%) |
|
Company |
Return % |
Weight |
Weighted Return |
|
Cyclone |
7 |
0.4 |
2.8 |
|
Blooper |
6 |
0.6 |
3.6 |
|
Portfolio Return |
6.4 |
Calculation of Expected return of
Portfolio:
|
State |
Portfolio Return % |
Probability |
Expected Ret.(Ret.*Prob.) |
|
Boom |
14.4 |
0.15 |
2.16 |
|
Normal |
6.4 |
0.85 |
5.44 |
|
Expected Portfolio return |
7.6 |
Calculation of Standard Deviation of returns of
Portfolio:
|
State |
Portfolio Return % |
Expected Ret. |
Deviation(Ret.-Exp Ret.) |
Deviation2 |
|
Boom |
14.4 |
7.6 |
6.8 |
46.24 |
|
Normal |
6.4 |
7.6 |
-1.2 |
1.44 |
|
Total of Deviation2 |
47.68 |
|
S.D.(=√Total of
Deviation2) |
6.9050706 |
Calculatin of Portfolio Beta:
|
Stock |
Beta |
Weight |
Product(Beta*Weight) |
|
AA |
0.64 |
0.3 |
0.192 |
|
BB |
1.48 |
0.5 |
0.74 |
|
CC |
1.04 |
0.2 |
0.208 |
|
Portfolio Beta |
1.14 |
Calculation of Expected return Rj (CAPM
Return).:
Rj=Risk Free ret(Rf) + Beta(Risk Premium)
Rj(AA)=2.5+.64(8)
=2.5+5.12
=7.62
Rj(BB)=2.5+1.48(8)
=2.5+11.84
=14.34
Rj(CC)=2.5+1.04(8)
=2.5+8.32
=10.82
