Question

You are provided with 5 possible portfolios. They are made up of a combination of 3 assets: Share A, Share B and Reit A.

Table1:Potential Returns.

	Portfolio 1	Portfolio 2	Portfolio 3	Portfolio 4	Portfolio 5
Share A	58%	40%	26%	67%	100%
Share B	20%	45%	74%	15%	0%
REIT A	22%	15%	0%	18%	0%

Portfolio Risk Calculator:

	Return	Standard deviation of return	Standard deviation of excess return	Weight
					Share A	16%	10%	10%
					Share B	22%	16%	16%
					REIT A	18%	12%	11%

Use the weightings provided in Table 1 and portfolio risk and return calculator above to calculate the following.

			Portfolio 1	Portfolio 2	Portfolio 3	Portfolio 4	Portfolio 5
Portfolio return
Portfolio standard deviation
Standard deviation of portfolio's excess return

Answer 1

Answers

	Portfoli 1	Portfoli 2	Portfoli 3
1.Portfolio Return	17.64%	19%	20.44%
(Return *weight )	(16*0.58)+(22*0.2)+(18*0.22)	(16*0.4)+(22*0.45)+(18*0.15)	(16*0.26)+(22*0.74)
(Share A* Weight)+(Share B*Weight)+(REIT A *Weight)
2.Portfolio Standard deviation	11.64%	13%	14.44%
(Portfolio Standard deviation *Weight)	(10*0.58)+(16*0.2)+(12*0.22)	(10*0.4)+(16*0.45)+(12*0.15)	(10*0.26)+(16*0.74)
3.Standard deviation of portfolio's excess return	11.42%	12.85%	14.76%
(Standard deviation of excess return *weight)	(10*0.58)+(16*0.2)+(11*0.22)	(10*0.4)+(16*0.45)+(11*0.15)	(10*0.26)+(16*0.76)