Solving The Questions Risk Assessment and Portfolio Management 1

Solving the Questions

Risk Assessment

And

Portfolio Management

Mehmet F. Celik

Dr. Bliss: Corporate Investment Analysis, Fin 550

Strayer University
Solving The Questions Risk Assessment and Portfolio Management 2

1.

Rate of Real Rate of Return

Investment Category Rate of Return Inflation (Rate of Return - Rate of inflation)
U.S. Government T-Bills 3.5% 2.9% 0.6 %
Large-cap Common Stocks 12.1% 2.9% 9.2%
Long-term Corporate Bonds 6.2% 2.9% 3.3%
Long-term Government Bonds 5.6% 2.9% 2.7%
Small -capitalization Common Stock 14.6% 2.9% 11.7%

2.

Month Nike JNJ

1 -5,00% 8,00%
2 3,00% -1,00%
3 -6,00% -2,00%
4 9,00% 11,00%
5 -2,00% -4,00%
6 3,00% 6,00%

Mean 0,33% 3,00%

Standard Deviation 5,72% 6,13%
Covariance 0,001466667
Correlation Coefficient 0,502188005

3.

a.

Company ai (Intercept) σi (%) riM βi= (σi / σM )*riM

Johnson and Johnson 0,09 14,40 0,41 1,09
Exxon Mobil 0,15 7,40 0,53 0,73
Pfizer 0,07 10,30 0,67 1,28
Microsoft 0,21 12,00 0,7 1,56
S&P 500 0 5,40 1 1,00

b.
Solving The Questions Risk Assessment and Portfolio Management 3

RFR = 5%
E(RM) = 12%

ai
Company E(Ri)=RFR+ βi *[E(RM)-RFR ]
(Intercept) σi (%) riM
Johnson and Johnson 0,09 14,40 0,41 0,13
Exxon Mobil 0,15 7,40 0,53 0,10
Pfizer 0,07 10,30 0,67 0,14
Microsoft 0,21 12,00 0,7 0,16
S&P 500 0 5,40 1 0,12

4.

Month COLM Index

1 34,00% 14,00%
2 9,00% 12,00%
3 -10,00% 13,00%
4 7,00% -8,00%
5 9,00% 11,00%
6 3,00% 6,00%
The Correlation Coefficient 0,166212854
The Standard Deviation 14,32% 8,32%
The Beta 0,080461638