Managerial accounting Assignment.

Managerial accounting
Assignment
[DATE]
STUDENT ID
STUDENT NAME

Question 4
Portfolio expected return = $10,000
Expected return of stock X = 11.5%
Expected return of stock Y = 9.4%
Expected return portfolio = 10.85%
Money invest in stock X and stock Y =?
Weight of stock X is Wx and stock Y is Wy.
Now,
0.1085 = (0.115*Wx) +(0.094*Wy)
0.1085 = (0.115*Wx) +(0.094*(1-Wx)
Wx = 0.690476
Wy = 1 – Wx = 1-0.690476 = 0.3095
Now,
Question 7
Expected return and standard deviation of stock A and B
State of
Economy
Probability of State of
Economy
Rate of Return if State
Occurs
Stock A Stock B
Recession .15 .04 −.17
Normal .55 .09 .12
Boom .30 .17 .27
1

For Stock A
Expected return = (0.15*0.04) + (0.55*0.09) + (0.30*0.17) = 0.1065 or 10.65%
Standard deviation = Sqrt {(0.04-0.1065)2 + (0.09 -0.1065)2 + (0.17 -0.1065)2} = 0.09341 or
9.34%
For Stock B
Expected return = (0.15*(-0.17)) + (0.55*0.12) + (0.30*0.27) = 0.1215 or 12.15%
Standard deviation = Sqrt {(-0.17-0.1215)2 + (0.12 -0.1215)2 + (0.27 -0.1215)2} = 0.3271 or
32.71%
Question 10
(a) Expected return on portfolio
Weight of portfolio in A = 30%,
Weight of portfolio in B = 30%,
Weight of portfolio in C = 40%,
Expected return on portfolio = (0.30 * 0.123) + (0.30*0.080) +(0.40*0.061) = 0.085 or 8.5%
Hence, expected return on portfolio is 0.085.
(b) Variance and standard deviation of the portfolio
2

Working for market returns:
Variance= { Expected return∗( Market return )2 }− ( Expected return )2
Variance=0.02− ( 0.085 ) 2 =0.013∨1.337 %
Standard deviation = SQRT (Variance) = SQRT(0.013) = 0.116 or 1.156%
Question 17
Beta of stock = 1.14
Expected return = 10.5%
Risk free asset earns = 2.4%
(a) Expected return of portfolio
Expected return of portfolio = (0.50*10.5%) + (0.50*2.4%) = 6.45%
(b) Portfolio of two assets has beta = 0.92
Portfolio weight =?
0.92 = W1*1.14 + W2*0
W1 = 0.92/1.14
3

W1=0.8070
W2 = 1-0.8070 = 0.193
(c) Expected return of portfolio = 9%
Beta =?
9% = W1*10.5% + (1-W1) * 2.4%
W1 = 0.8148
W2 =1-W1
W2= 1-0.8148 = 0.1852
Hence,
Portfolio beta = (0.8148*1.14) + (0.1852*0) = 0.93
(d) Portfolio of two assets has beta = 2.28
Portfolio weights =?
2.28 = W1*1.14 +W2*0
W1 = 2.28/1.14 = 2
W2 = 1-W1= 1-2 = -1
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