RISK AND RETURN PORTFOLIO ANALYSIS
To check how much return and risk will be faced by investor on portfolio investment is called risk and return protfolio analysis
In this question we show only how to calculate return.
Pepsi E(R) = 12% S.D= 9% amount=50000
Nestle E(R) = 20% S.D= 12% amount=30000
Lucky Cement = E(R) = 10% S.D= 5% amount=20000
what will be tatal risk and return?
Portfolio Return:
Rp = ∑W x E (R)
Rp = Return on portfolio
E(R) = Expected return
∑W = weights
what formula will be for three securite return calculation
Rp = Wa x E (R)a + Wb x E (R)b +Wc x
E (R)c
Weight: The portion of your investment amount invest in a single security is called weight.
Weight of single security = single security amount / total all securities amount
Tatal amount = 50000 + 30000 + 20000
= 100000
Pepsi weight or Expected return
Wa= 50000/100000 = 0.5 E(R)a = 12/100 = 0.12
Nestle weight or Expected return
Wb = 30000/100000 = 0.3 E(R)b = 20/100 = 0.2
Lucky cement weight or Expected return
Wc = 20000/100000 = 0.2 E(R)c = 10/100 = 0.1
Put the all values
Rp = Wa x E (R)a + Wb x E (R)b +Wc x E (R)c
Rp = (0.5 x 0.12) + (0.3 x 0.2) + (0.2 x 0.1)
= 0.1400 or 14% Expected return
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TYPES OF MUTUAL FUNDS
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RISK AND ITS TYPES
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CAPM MODEL (CAPITAL ASSET PRICING MODEL)
MARKOWITZ MODEL
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