John kamau wants to invest in securities of 3 companies that is ABC Limited, XYZ Limited andMNO limited. If the portfolio value is sh.100 million. All the three companies have the followinginformation
John kamau wants to invest in securities of 3 companies that is ABC Limited, XYZ Limited and
MNO limited. If the portfolio value is sh.100 million. All the three companies have the following
information
ABC LTD XYZ LTD MNO LTD
| ABC LTD | XYZ LTD | NMO LTD | |
| Standard deviation | 12% | 16% | 18% |
| weight of abc and xyz | 70% | 30% | 0 |
| weight of abc and mno | 50% | 0 | 50% |
| Weight of Xyz and | 0 | 60% | 40% |
| market rate of return | 20% | 14% | 16% |
| risk free rate | 12% | ||
| correlation coefficient: | |||
| between abc and xyz | -70% | ||
| between abc and mno | 70% | ||
| between xyz and mno | 30% | ||
| risk free rate | 12% | ||
| 99% confidence level |
Required:
(a) Calculate the portfolio risk of the 3 two asset portfolio combinations
(b) Calculate the VaR of the two possible assets combinations
(c ) calculate the minimum profit that the two assets combinations will yield
