FINANCE- Portfolio Theory & CAPM Year 1 2 3 4 5 Asset A


Portfolio Theory & CAPM


		Rate of Return
	Year	Asset A	Asset B	Market
	1	21.0%	29.0%	11.0%
	2	-11.0%	-16.0%	12.0%
	3	10.0%	12.0%	6.0%
	4	-9.0%	33.0%	-4.0%
	5	19.0%	-14.0%	-7.0%

			Asset A	Asset B	Market
1	Average Return
2	Std Dev of Returns ( Hint: Use STDEVP function)
3	Correlation (A, B) (Hint: Use correl function)

4	Calculate Portfolio Expected Returns and Standard Deviation

	Use the following formula to calculate the portfolio standard deviation
	ϭ_P =√ (w_Aϭ_A)² + (w_Bϭ_B)² +(2 w_A w_Bϭ_Aϭ_B ρ_(A,B))
	=(((w_Aϭ_A) ^ 2) + ((w_Bϭ_B)^2)+(2 w_A w_B ϭ_A ϭ_B *ρ_(A,B))))^.5
	Where w_Aandw_B are the % of assets in Asset A and B respectively
	ϭ_A andϭ_B are the respective standard deviations of return and
	ρ(A,B)).is the correlation of returns between asset A and B

			Portfolio Std Dev.	Portfolio Expected Return
	% Asset A	% Asset B
	0%	100%
	25%	75%
	50%	50%
	75%	25%
	100%	0%


5	Plot Portfolio Returns (X axis) against Portfolio Standard Deviation (risk) (X axis)
	(Hint: Use Insert and then select Scatter Diagram option)














6	Calculate Betas for Asset A and Asset B
	(Hint: β = (σ_A ρ_A,M) / σ_M or use slope function)

	Beta for Asset A =
	Beta for Asset B =

7	Calculate Required Return for Asset A and Asset B
	Risk Free Rate =	2%
	Market Return =	12%

	Required Return for Asset A =
	Required Return for Asset B =