Finance Assignment Help On Portfolio Expected Return and Variance 

You are planning to form a portfolio with two securities, the details of which are as follows: 

Security Expected Return Standard Deviation 

1                    12%                   4% 2                    13%

Assume that the returns on these two securities are perfectly negatively correlated. Calculate portfolio expected return and variance for different combinations of these two securities and draw the efficient frontier. If you require an expected return of 11%, calculate the standard deviation of your portfolio. Answer Finance Assignment Help : Calculation of Expected Return for Portfolio Portfolio Description

Security	Expected Return	Standard Deviation
1	12%	4%
2	10%	3%

  Calculation of Standard Variation and Variance for different Combinations of these two securities are as below: Expected portfolio return can be calculated with the help of following formula: =  w₁E(R₁) + w₂E(R₂)…….(w_nE(R_n) Where,

• = expected portfolio return

w₁ = weight for security 1 w₂ = weight for security 2 E(R₁) = Expected return on security 1 E(R₂) = Expected return security 2 Thus, calculation of expected return for different combinations of these securities is as below:

Weight		Portfolio
1	2	Return	Std. div.
0.10	0.90	10.2%	-2.30%
0.20	0.80	10.4%	-1.60%
0.30	0.70	10.6%	-0.90%
0.40	0.60	10.8%	-0.20%
0.50	0.50	11.0%	0.50%
0.60	0.40	11.2%	1.20%
0.70	0.30	11.4%	1.90%
0.80	0.20	11.6%	2.60%
0.90	0.10	11.8%	3.30%

(See Attached Excel) In the above table standard deviation or risk for portfolio is calculated with the help of following formula: Portfolio Standard Deviation = [?₁w₁ – ?₂w₂] ?₁ = Standard Deviation of Security 1 ?₂ = Standard Deviation of Security 2 w₁ = Weight for Security 1 w₂ = Weight for Security 2 In order to calculate portfolio risk, this formula is used because there is negative correlation between these two securities.

Efficient Frontier The efficient frontier is the frontier designed with the use of efficient portfolios. Above graph shows that the curve starting from point -2.30%, which is the minimum variance portfolio and extending to the point 3.30, this point is the efficient frontier (Jones, 2009). If expected return is11%, the standard deviation of portfolio will be: In order to get expected return of 11%, the portfolio weight will be 50% each. (0.50*12%) + (0.50*10%) = 11% Standard deviation will be: [(4%*0.50)-(3%*0.50)] [2%-1.5%] [0.5%] The standard deviation will be 0.5%.   Reference Jones, C. P. (2009). Investments: Analysis and Management. USA: John Wiley and Sons. Please send us your finance work to our assignment experts and get best and original assignment help from our best assignment helper experts.