Portfolio and Fund Management - Assignment Example

The paper "Portfolio and Fund Management" is a perfect example of a finance and accounting assignment. Monthly returns: In order to calculate monthly returns, the end month share price is divided with the beginning share price minus one. The figure is then converted to a percentage by multiplying by one hundred (Pastor 2000).

Question Two

Mean and standard deviation of returns using the monthly rates of return: Mean is calculated using the average formula from excel. The mean for every year is calculated using the monthly rates of return (Pastor 2000).

Standard deviation is calculated using the following formula:

Standard deviation= SQRT ((Sum (monthly rate of the return-average monthly rate of return) ^2))/ number of months (All

Financial Matters 2012).

Question three

Covariance and variance are used to measure the risk of a given portfolio. In order to know the risk involved in investing in an asset. It becomes necessary to analyse the returns that the asset will have in the future (Pastor 2000). The covariance matrix used in this question measures 12 by 12. This is because there are twelve months and 12 years for every share. Data analysis tool in excel is the method used to calculate covariance for monthly returns. It has a covariance function from which every return is calculated.

Question four

The mean return is used to calculate the average of returns. This way, it is possible to know where the portfolios lie

The mean and standard deviation of returns using the monthly rates of return

The covariance matrix of monthly returns on the chosen shares:

The covariance matrix is calculated using the covariance formula in the excel Data Analysis Tool.

Portfolio V: The excel solver is used to calculate the efficiency of assets. This portfolio is used to measure the risk level of an asset given the returns and weight. The methodologies used in measuring portfolio mean and standard deviations are excel and solver (Using Excel Solver Tool 2012). The solver function is installed using the add-on features (Pastor 2000). By use of the mean, it becomes possible to know the variance and covariance of a risky asset. By use of the rate of return, it is also possible to know the expected income or future value of an asset. All the portfolios used in this work are therefore necessary for estimating the future. The charting techniques are important in order to know the physical appearance of a portfolio (Pastor 2000).

Question five

Portfolio W: This portfolio is used to analyse the mean return and standard deviation. In order to obtain the mean, the rate of return is required. The weighted average is equivalent to the individual share price divided by the total share price. The return is calculated as a percentage and from it; the mean return is calculated by averaging the portfolios. Standard deviation is used to measure how much asset returns differ from each other (Pastor 2000).

Question six

Portfolio G: This portfolio is used to measure the minimum variance among the three stocks. The minimum variance is a measure of the efficiency of an asset. The aim is to assess the stock that reduces the variance. Additionally, mean return and deviation are also used to measure risk (Pastor 2000).