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Week 9 - Workshop Questions

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18 views

Week 9 - Workshop Questions

Uploaded by

dzungkt55
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FIN3IPM – PORTFOLIO MANAGEMENT

WORKSHOP 9

ANALYSIS OF PERFORMANCE
Question 1

An investor has placed her funds with a fund manager.


• She initially invests $160,000.
• A year later, at the end of Year 1, the portfolio has grown in value to $210,000.
• At the end of Year 1, she invests another $40,000.
• During Year 2 the portfolio loses $30,000 in value.
• At the end of Year 2, the investor invests another $60,000.
• At the end of Year 3, the portfolio is worth $350,000.

(a) What is the value of the return from the point of view of the investor?

(b) What is the value of the return from the point of view of the portfolio manager?

Question 2

The following table shows the expected return, standard deviation and beta for 3 exchange traded funds
(ETFs). ETF A consists solely of investments in shares, ETF B consists solely of investments in bonds, and
ETF C is a Real Estate Investment Trust. The table also shows information relating to the market portfolio
and risk-free asset.

The correlation coefficient between ETFs A and B is –0.3.

ETF E(R) Std Dev Beta


A 12% 32% 1.2
B 5% 12% 0.8
C 9% 10% 1.4
Market 8% 15%
RF 3%

(a) Complete the table by entering values into the empty cells.

(b) For each ETF, calculate the following ratios:

i. Sharpe ratio

ii. Treynor ratio

iii. Jensen’s alpha

iv. M2

Question 3

Rank the ETFs from highest to lowest value for each of the four ratios in Question 2.
Question 4

Download the spreadsheet “Excel Working File” from the Topic 9 section of the LMS.

(a) Calculate the ratios from Question 2 using Excel.

Portfolio X comprises a combination of ETFs A and B. The table in the Excel file lists 6 different versions
for Portfolio X, with the weight of the share ETF varying from 0% to 100% in increments of 20%.

(b) Complete the table, calculating:


• the weight of ETF B,
• the expected return, and
• the standard deviation
for each version of Portfolio X.

(c) Create an Excel chart showing the investment opportunity set for Portfolio X.
(Hint: Use a scatter plot to graph the values of risk and return for each version of Portfolio X.)

(d) Calculate the Sharpe ratio for each version of Portfolio X.

(e) Determine the optimal weight of ETFs A and B in Portfolio X by working through the following
steps.

i. Consider Portfolio Y, which consists of a combination of Portfolio X and the risk-free asset.
ii. The characteristic line for Portfolio Y is a straight line joining the risk-free asset and
Portfolio X.
iii. The optimal weight of ETFs A and B in Portfolio X are the weights which will maximise the
slope of Portfolio Y’s characteristic line. The characteristic line will be tangential with
Portfolio X’s investment opportunity set, touching at the version of Portfolio X which has
the optimal weight of ETFs A and B. All versions of Portfolio Y on this characteristic line
dominate all portfolios in Portfolio X’s investment opportunity set.
iv. The slope of Portfolio Y’s characteristic line is the portfolio’s Sharpe ratio.
v. By observing the investment opportunity set for Portfolio X, estimate the approximate
weight for ETF A in Portfolio X which will maximise the slope of Portfolio Y’s characteristic
line.
vi. Insert a line in the table where the optimal version of Portfolio X will be located.
vii. Enter your estimate of the optimal weight of ETF A.
viii. Calculate the optimal weight of ETF B and expected return, standard deviation and Sharpe
ratio of Portfolio X based on the optimal weight of ETF A.
ix. Use Solver to calculate the optimal weight of ETF A in Portfolio X.
x. Add Portfolio Y’s characteristic line to the chart
Question 5

Screenshots from LSEG Workspace have been uploaded to the LMS which will provide the information
needed to answer the following questions.

Screenshot 1 – iShares Core S&P/ASX 200 ETF Performance

(a) What is the 1 Year return on this ETF?

(b) What is the 1 Year return on the S&P/ASX 200 Total Return Index (shown in
purple under the header “FM”)?

Screenshot 2 – iShares Core S&P/ASX 200 ETF Chart compared to the S&P/ASX 200 Index

(c) What do you observe? Are there periods over the past year when the fund has matched,
underperformed or outperformed the index?

Screenshot 3 – iShares Core S&P/ASX 200 ETF Technical Analysis

(d) Insert the performance measures for the ASX 200 ETF in the table below

Screenshot 4 – BetaShares Australian Small Companies ETF Performance

(e) What is the 1 Year return on this ETF?

(f) What is the 1 Year return on the S&P/ASX Small Ordinaries Total Return
Index (shown in purple)?

Screenshot 5 – BetaShares Australian Small Companies ETF Technical Analysis

(g) Insert the performance measures for the ASX 200 ETF in the table below

Performance Measure ASX 200 ETF ASX Small Ords ETF


Alpha
Annualised Standard Deviation
Beta
Sharpe Ratio
Treynor Ratio

(h) Have small stocks outperformed or overperformed over the last year, compared to
large stocks?

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