Book 1_Quan_Portfolio management

Question 1

• The expected return

Answer 1

• The expected return of a portfolio composed of n assets with weights, wi , and expected returns, Ri , can be determined using the following formula:
  E = Sum (WiRi)

Question 2

• Covariance

Answer 2

a measure of how two assets move together

Question 3

• Portfolio variance

Answer 3

to calculate the variance of portfolio returns, we use the asset weights, returns variances, and returns covariances (Sxy)

• 2 assests
  Var(Rp) = WaWaCov(Ra,Ra) + WaWbCov(Rb,Ra) + WbWaCov(Ra,Rb) + WbWbCov(Rb,Rb)
• 3 assests:

Question 4

• Shortfall risk

Answer 4

+ the probability that a portfolio’s value (or return) will fall below a specific value over a given period.

Question 5

• The safety-first ratio for Portfolio P, based on a target return RT , is

Answer 5

SFRatio = (E(Rp)- RL)/sigma(p)

RP: porfolio return
RL: threshold level return