Topic- Portfolio Investment Management Calculations and their Applications to Decision - Making.

Question 1
The data given in the question is as under, the return is calculated by subtracting the share price at 01.01.2019 from the share price at 31.12.2019.
    Company
    Number of Shares
    Share Price 01.01.2019
    Share Price 31.12.2019
    Return
    Return %
    Good Ltd.
    800
     $ 12.00
     $ 12.48
     $ 0.48
    4.00%
    Better Ltd.
    1000
     $ 8.00
     $ 8.80
     $ 0.80
    10.00%
    Best Ltd.
    2000
     $ 30.00
     $ 34.20
     $ 4.20
    14.00%
(a). The formula to calculate the equal weighted in return is as under:
Return of Good Ltd. X 1/3 + Return of Better Ltd. X 1/3 + Return of Best Ltd. X 1/3
= 4% x 1/3 + 10% x 1/3 + 14% x 1/3
= 1.33% + 3.33% + 4.67%
= 9.33%.
Hence the return under the equal weighted is 9.33%.
(b). The formula to calculate the price weighted return is as under:
Return of Good Ltd. X Weight of Share + Return of Better Ltd. X Weight of Share + Return of Best Ltd. X Weight of Share
= 4% x 12.48/55.48 + 10% x 8.80/55.48 + 14% x 34.20/55.48
= 0.90% + 1.59% + 8.63%
= 11.12%
Hence the return under the price weighted is 11.12%.
(c).
    Company
    Number of Shares
    Share Price 31.12.2019
    Total Value of Share
    Weight Based on Value
    Good Ltd.
    800
    $ 12.48
    $ 9,984.00
    0.11
    Better Ltd.
    1000
    $ 8.80
    $ 8,800.00
    0.10
    Best Ltd.
    2000
    $ 34.20
    $ 68,400.00
    0.78
The formula to calculate under the weighted return is as under:
Return of Good Ltd. X Weight of Share + Return of Better Ltd. X Weight of Share + Return of Best Ltd. X Weight of Share
= 4% x 0.11 + 10% x 0.10 + 14% x 0.78
= 0.46% + 1.01% + 10.98%
= 12.45%
The return under the value-based weight is 12.45%.
(b). The method which provides the most accurate calculation of the portfolio return is value-based return. The reason is that it represents the weight of the portfolio based on the amount of money invested in each company in the portfolio.
Question 2
Given Data:
Annual Return over 5 years = 12%, 7%, -4%, 9%, 13%
Risk Free Rate of Return = 4%
(a). The formula to calculate the arithmetic average annual return is as under:
= Sum of Annual Returns / Number of periods
= 12% + 7% + (-4%) + 9% + 13% / 5
= 7.40%
(b). The formula to calculate the Standard Deviation is as under:
    Year
    Return (a)
    Deviation
    Deviation...