Essays on Risk Return and Equity Assignment

The paper 'Risk Return and Equity' is a good example of a Finance and Accounting Assignment. It can be observed from the table above that Sealy limited is having ideal investment alternativeness as measured by the return on investment of 9%. The implication is that the stock for Sealy limited is depicting low risk on return and high value as evaluated by the standard deviation which measures the risk of returns. The impact of this is that high expected returns and low standard deviation might be ideal because, the risk is evaluated by standard deviation which is good for venture alternative to an investor to invest in a stock that depicts the trait of low risk and high value(Alastair Graham, 2000). 3.

Correlation coefficient between Sealy and Gas Sealy Ltd Gas Ltd     Sealy Ltd Gas Ltd -4% -7%   Sealy Ltd 1   7% 4%   Gas Ltd 0.999 1 9% 7%         12% 10%                     The table above shows a correlation of 0.999 which is a strong correlation since it is close to one. The implication there is a strong correlation between the stock for Gas and Sealy ltd Sealy and Gas and Space       Correlation     Sealy Ltd Gas Ltd Space Ltd     Sealy Ltd Gas Ltd Space Ltd -4% -7% -10%   Sealy Ltd 1     7% 4% 8%   Gas Ltd 0.99947 1.00000   9% 7% 10%   Space Ltd 0.99466 0.99349 1 12% 10% 13%                           The table above depicts a strong correlation 0.999 between Sealy limited, Gas, and space limited.

The implication is that the three portfolio investment would be recommended to investment since, an investor will be guaranteed of high return at the low cost of capital(Cloonan, 2015). 4. The expected return and standard deviation of a two-asset portfolio comprised of Sealy and Gas ltd Sealy Ltd Expected return Weight Weighted Returns 7% 40% 62% 25% 9% 25% 38% 10% 12% 65%             Gas Ltd Expected return Weight Weighted Returns 4% 56% 57% 32% 7% 43% 43% 19% 10% 99%     Portfolio Expected Weighted returns       Sealy Ltd   Gas Ltd   Weighted Returns Weighted Returns Portfolio Weighted returns 25% 32% 57% 10% 19% 28% Therefore, portfolio expected returns shall be Sealy Ltd Expected return Weight Weighted Returns Space Ltd Expected return Weight Weighted Returns Portfolio Expected returns 7% 40% 62% 25% 8% 28% 47% 13% 38% 9% 25% 38% 10% 10% 31% 53% 16% 26% 12% 65%     13% 59%                         Portfolio Standard deviation Sealy Ltd 65.05% Expected return standard deviation Weight Weighted standard deviation 7% 40% 2% 62% 1% 9% 25% 1% 38% 0% Gas Ltd         Gas Ltd standard deviation Weight Weighted standard deviation 4.35% 2.80% 60.9% 2% 6.78% 1.47% 60.9% 1% Portfolio Weighted standard deviation Weighted standard deviation(Sealy Ltd) Weighted standard deviation(Gas Ltd) Portfolio Weighted standard deviation 1.4% 2% 4.5% 0.2% 1% 1.2% Sealy and Space shares Sealy Ltd Expected return Weight Weighted Returns Space Ltd Expected return Weight Weighted Returns 7% 40% 62% 25% 8% 28% 47% 13% 9% 25% 38% 10% 10% 31% 53% 16% 12% 65%     13% 59%     Portfolio Expected returns Sealy Ltd Expected return Weight Weighted Returns Space Ltd Expected return Weight Weighted Returns Portfolio Expected returns 7% 40% 62% 25% 8% 28% 47% 13% 38% 9% 25% 38% 10% 10% 31% 53% 16% 26% 12% 65%     13% 59%       Portfolio Expected returns and Standard Deviation Sealy Ltd Expected return standard deviation Weight Weighted standard deviation Space Ltd standard deviation Weight Weighted standard deviation 7% 40% 2% 62% 1% 8% 2% 77% 2% 9% 25% 1% 38% 0% 10% 1% 77% 1% Weighted standard deviation(Sealy Ltd) Weighted standard deviation(Space Ltd) Portfolio Weighted standard deviation 1% 2% 3.3%% 0% 1% 1% Gas and Space shares Portfolio Expected Returns Gas Ltd Expected return Weight Weighted return 4% 56% 57% 32% 7% 43% 43% 19% 10% 99%             Space Ltd Expected return Weight Weighted return 8% 28% 47% 13% 10% 31% 53% 16% 13% 59%             Portfolio Weighted Returns       Gas Ltd 32%       19%     Space Ltd         13%       16%     Portfolio Weighted Returns 80%     Portfolios Standard Deviation Space Ltd Standard Deviation Weight Weighted Standard Deviation 7.50% 2.07% 76.60% 2% 9.60% 1.47% 76.60% 1% 12.54%               Gas Ltd Standard Deviation Weight Weighted Standard Deviation 4.35% 2.80% 60.90% 2% 6.78% 1.47% 60.90% 1% 11.13%               Portfolio Standard Deviation     Space Ltd 2%       1%             Gas Ltd 2%       1%     Portfolio Standard Deviation 6%             It is evident from the table above that the investor must hold a diversified efficient portfolio in order to minimize risk and improve the return on investment.

The table depicts that holding a portfolio of security would lead to a reduction in risk to 6% as measured by the standard deviation and increase in returns of 80% as compared to having a single portfolio. As a result, to make a profit on investment, an investor needs to be certain that he holds a portfolio of securities in order to reduce the risk and improve the return on securities(Tom K.

Lloyd, 2013). 5. The expected return and standard deviation of a three-asset portfolio comprised of Sealy, Gas, and Space shares Sealy Ltd Gas Ltd Space Ltd Expected Return 7% 4% 8% 191% 9% 7% 10% Standard Deviation 12% 10% 13% 0.01 It is evident in the table above that a mix of securities for Sealy, Gas, and Space limited creates a high return of 191% and low risk as measured by the standard deviation of 1% which justifies the need for investing in portfolio combination of securities or assets. This would mean that the growth in investment diversification depicts an inverse relationship with the risk of the return(Michael Ehrhardt, 2008). 6.

the average return, variance and standard deviation for Air Technologies Ltd, Mineral Resources Ltd, and the Market index Standard deviation= {square root of variance}   Average Return Variance Standard Deviation Air Technologies Ltd (%) 3 36 6 Share Market index (%) 3 36 6 Mineral Resources Ltd (%) 3 41 6 7. Systematic risk (Beta) of both Air Technologies and Mineral Resources Ltd. Beta=COVARIANCE. P (equity price array, index price array)/VAR. P (index price array)

Bibliography

Alastair Graham, ‎.C., 2000. Cash Flow Forecasting and Liquidity - Page 21. New York.

Cloonan, J., 2015. Measures of Portfolio Risk and How You Can Apply Them. Journal of American Association of individual investors.

Michael Ehrhardt, ‎.B., 2008. Corporate Finance: A Focused Approach - Page 554. london.

Tom K. Lloyd, S., 2013. Successful Stock Signals for Traders and Portfolio. London: Cingage Learning.

Weygandt, J.J., 2009. Managerial Accounting: Tools for Business Decision Making. London.