Financial Economic

Running head: FINANCIAL ECONOMIC
Financial Economic
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1FINANCIAL ECONOMIC
Table of Contents
1. Calculating the expected return, standard deviation and geometric mean:.................................2
2. Calculating the correlation matrix:..............................................................................................2
3i. Calculating the covariance matrix:.............................................................................................3
3ii. Calculating the bordered covariance matrix:.............................................................................3
4. Graphing the efficient frontier with restricted minimum variance frontier:................................4
5. Identifying the investors utility:...................................................................................................4
6. Graphing the efficient frontier with unrestricted minimum variance frontier:............................5
7. Identifying the investors utility:...................................................................................................6
8. Explaining the reasons for any differences between the utility-maximising target:...................6
9. Drawing the capital allocation line on efficient frontier:.............................................................7
10. Identifying the assumptions that would be undertaken for the overall analysis:.......................7
References and Bibliography:..........................................................................................................9

2FINANCIAL ECONOMIC
1. Calculating the expected return, standard deviation and geometric mean:
A B C D E F G
Average return 12.99%
5.16
% 3.88% 14.29% 16.18% 4.21% 18.91%
Standard deviation 12.78%
5.88
% 5.69% 15.98% 19.06% 5.95% 24.03%
Geometric mean returns 12.28%
5.00
% 3.74% 13.25% 14.78% 4.04% 16.75%
There is relevant relationship between the arithmetic mean and geometric mean, where
the arithmetic mean only averages the overall returns of the stock. On the other hand, geometric
mean provides compounding value of the returns, which is more precise and accurate. The above
valuation indicates that the average mean is higher than the geometric mean, as the total returns
of the assets are compounded.
2. Calculating the correlation matrix:
Correlation
Matrix A B C D E F G
A 1
0.332419
419
0.134768
423
0.80587
87
0.866415
794
0.301961
33
0.687405
332
B
0.332419
419 1
0.683003
117
0.42511
479
0.353518
279
0.567142
958
0.364257
783
C
0.134768
423
0.683003
117 1
0.34895
031
0.205649
278
0.655363
078
0.344341
091
D
0.805878
703
0.425114
79
0.348950
315 1
0.677838
173
0.323448
005
0.969023
692
E
0.866415
794
0.353518
279
0.205649
278
0.67783
817 1
0.205196
426
0.550315
313
F
0.301961
33
0.567142
958
0.655363
078
0.32344
8
0.205196
426 1
0.293342
311
G
0.687405
332
0.364257
783
0.344341
091
0.96902
369
0.550315
313
0.293342
311 1