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Quantitative Analysis for Finance - Coursework Example

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The main focus of these three exercises include calculation of the return on the stock, bond and total portfolio of the investors during the year; Determination of the capital market line equation(CML) and calculation of the standard deviation and the expected return of the…
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Quantitative Analysis for Finance
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Download file to see previous pages Basing on the calculated percentages, the return of each portfolio was calculated. Therefore, based on the results, the plan consists of the losses and the highest drawdown which could help investors prepare for what they could face in future. In relation to this, even if the financial plan is considered to be the simplest, it needs assumptions about the way the investment could perform. It is known that such assumptions might not be accurate, but they are required to be reasonable as well as thoughtful. The projections won’t be that useful in case you assume a balanced portfolio with a return of 7 percent every day. It was found that the returns of the total portfolio of investors during the year are negative and this indicates that the portfolio is not good enough to invest. Such resulted from the drop in value of the initial investment of the common bond which was from 30 000 pounds to 23 000 pounds. There was rise in value of the stock investment from 20 000 pounds to 25 000 pounds and this implies that the stock portfolio is good for investment. In regard to the determination of the capital market line equation (CML), we considered the fact that there was a correlation coefficient between the stock returns of 30 percent and the risk free rate of 5 percent .The risk profile could be altered easily when the asset risk is adjusted with the use of the risk –free rate. Based on the capital market line, the market portfolio has a combination of all risky-free asset and risky assets, with the use of the asset‘s market value to calculate the weights. The capital market line was derived by capital market model (CAPM) where the expected return at different risk levels was solved. For exercise 2, the capital market line was determined and in this case, it indicated that the diversified portfolio returns on the capital ...Download file to see next pagesRead More
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