MGT201 Assignment no 1 Fall 2016


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MGT201 Assignment Learning Objective

The students are expected to develop understanding about the concept of two stock portfolio
theory, portfolio risk and expected return

MGT201 Assignment Learning Outcomes

After attempting this assignment, the students would be able to comprehend the concept of two
stock portfolio theory, portfolio risk and expected return

MGT201 Assignment no 1

Suppose you are working on portfolio investment as financial analyst in an SMG Investments and you have been assigned a task to analyze the following situation:

A portfolio consists of two securities namely ABC Petroleum and XYZ bank. Expected risk of ABC Petroleum and XYZ bank are 12% and 14% respectively and weights of these securities
are 75% and 25% respectively. Expected returns of ABC petroleum is 12% while XYZ bank’s expected return is 9.5%.



Now keeping in view the above situation, you need to calculate “Portfolio risk” in case of:
a) Perfect positive correlation
b) Perfect negative correlation
c) Zero correlation
Based on calculation under each case also analyze in which case the risk of portfolio will be the lowest.


Calculate the expected return of this portfolio based on given information of two securities.

Question #3

A recent trend analysis of ABC Petroleum’s share price has shown an increasing trend while XYZ bank’s share price is showing decreasing trend with the time. If both the securities are perfectly negatively correlated and there is equal investment in both the securities, how this trend analysis of share prices will affect the overall return of the portfolio. Also discuss was this a wise decision to add negatively correlated securities in the portfolio? Why or why not?
NOTE: Formulas and complete working is mandatory for question #1 and 2 otherwise marks will be deducted.

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MGT201 Assignment no 1 Solution

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