Portfolio analysis:
You have been given the expected return data shown in the first table on three assets -F, G, and H- over the period 2016-2019. Expected return
Asset F
2016 16%,
2017 17%
2018 18%
2019 19%-
Asset G
2016 17%
2017 16%
2018 15%
2019 14%
Asset H
2016 14%
2017 15%
2018 16%
2019 17%
Using these assets, you have isolated the three investment alternatives shown in the following table.
Alternative investments 1- 100% of asset F
Alternative 2 50% of asset F and 50% of asset G
Alternative 3 50% of asset F and 50% of asset H
a. Calculate the expected return over the 4-year period for each of the three alternatives
b. Calculate the standard deviation of returns over the 4-year period for each of the three alternatives
c. Use your findings in parts a and b to calculate the coefficient of variation for each of the three alternatives
d. On the basis of your findings, which of the three investment alternatives do you recommend? why?
Portfolio analysis:
You have been given the expected return data shown in the first table on three assets -F, G, and H- over the period 2016-2019. Expected return
Asset F
2016 16%,
2017 17%
2018 18%
2019 19%-
Asset G
2016 17%
2017 16%
2018 15%
2019 14%
Asset H
2016 14%
2017 15%
2018 16%
2019 17%
Using these assets, you have isolated the three investment alternatives shown in the following table.
Alternative investments 1- 100% of asset F
Alternative 2 50% of asset F and 50% of asset G
Alternative 3 50% of asset F and 50% of asset H
a. Calculate the expected return over the 4-year period for each of the three alternatives
b. Calculate the standard deviation of returns over the 4-year period for each of the three alternatives
c. Use your findings in parts a and b to calculate the coefficient of variation for each of the three alternatives
d. On the basis of your findings, which of the three investment alternatives do you recommend? why?
Related questions
| Expected Return | ||||||||
| Year | Asset F | Asset G | Asset H | |||||
| 2016 | 16% | 17% | 14% | |||||
| 2017 | 17 | 16 | 15 | |||||
| 2018 | 18 | 15 | 16 | |||||
| 2019 | 19 | 14 | 17 | |||||
| Using these assets, you have isolated the three investment | ||||||||
| Alternatives shown in the following table | ||||||||
| Alternative | Investment | |||||||
| 1 | 100% of F | |||||||
| 2 | 50% of f and G | |||||||
| 3 | 50% of f and H | |||||||
| a. calculate the expected return over the 4 year period for all three alternatives | ||||||||
| b. calculate the standard deviation of returns ov the 4 year periof for each of the three alternatives | ||||||||
| c. Use your finding in part a and b to calculate the coefficient of variation for the three alternatives | ||||||||
| d. on the basis of your findings, which of the three investment alternaives do you recommend, why? | ||||||||
Jamie Wong is considering building a portfolio containing two assets, L and M. Asset L will represent 40% of the dollar value of the portfolio, and asset M will account for the other 60%. The expected returns over the next 6 years, 2004ā2009, for each of these assets, are shown in the following table.
| Year | Asset L | Asset M |
| 2004 | 14% | 20% |
| 2005 | 14 | 18 |
| 2006 | 16 | 16 |
| 2007 | 17 | 14 |
| 2008 | 17 | 12 |
| 2009 | 19 | 10 |
Ā a. Calculate the expected portfolio return.
b. Calculate the standard deviation of expected portfolio returns.
c. Find out covariance and correlation coefficient.
Your company would like to increase its product lines. Two alternatives are available, a new line of outdoor smokers and a new line of outdoor grills. The two lines are mutually exclusive, meaning that only one of these investment alternatives can be selected. The projected cash flows and their respective probabilities for each alternative are given in the table. There are three possible levels of demand and their corresponding probabilities, which depend on the state of the economy.
Click here to download the table for Investment A.
The two alternatives carry equal risk and should be evaluated at the company's cost of capital. The cost for the new smoker line will be $7,000,000. Also, the company has been guaranteed a buyer for the new line at the end of the fifth year. The buyer has agreed to purchase the new line for $7,900,000. The outdoor grill alternative will cost $3,987,000 and also has a guaranteed buyer, who has agreed to pay $4,000,000 at the end of the fifth year.
Jorge has asked you to provide detailed responses to the following:
Management of Vanda-Laye has determined that the capital structure of the company will involve 30% debt and 70% common equity. This structure will be used to finance all investments by the company. Currently, the company can sell new bonds at par, with a coupon rate of 7%. Any new common stock can be sold for $45, with a required return (or cost) of 15.57%. Using Microsoft Excel, calculate the company's cost of capital to be used in the evaluation of possible investment projects.
For Investment A:
Using Microsoft Excel, create a decision tree. Indicate the various levels of demand and their respective probabilities. Also, include the calculations for the expected cash flows.
Calculate the expected NPV for each alternative. Explain the decision rules for making a selection between the two alternatives on the basis of the expected NPV.
Assuming the two alternatives are mutually exclusive, specify which alternative you would recommend to the company. Explain why.
If the two alternatives were independent of each other, specify which project you would select. Would you accept both projects if funding were available for both? Explain your answer.
| Demand | Probability | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Outdoor Smoker | ||||||
| High | 0.2 | $800,000 | $900,000 | $1,000,000 | $1,100,000 | $1,500,000 |
| Moderate | 0.6 | $500,000 | $700,000 | $800,000 | $960,000 | $1,240,000 |
| Low | 0.2 | $200,000 | $350,000 | $500,000 | $600,000 | $750,000 |
| Outdoor Grill | ||||||
| High | 0.2 | $600,000 | $750,000 | $850,000 | $975,000 | $5,160,000 |
| Moderate | 0.6 | $450,000 | $500,000 | $700,000 | $825,000 | $4,980,000 |
| Low | 0.2 | $150,000 | $220,000 | $370,000 | $500,000 | $4,750,000 |
