PORTFOLIO MANAGEMENT NEW QUESTION FROM DEC. 2019 ATTEMPT CA FINAL SFM
Channel: PAVAN SIR CLASSES
Date: 19/07/2020

Answer 
(a) (i) The monthly risk free rate of return = (12%/12) = 1%
Month  RA  RM 
January  -0.52  0.82 
February 2.20  0.04 
March  2.17  2.80 
April  4.17  1.72 
May  2.04  0.27 
June  3.00  0.39 
July  1.99  1.95 
August  4.00  0.64 
September  -1.38  1.53 
October  2.67  2.70 
November  3.99  2.52 
December  1.86  2.09 
                            26.19             17.47 
Average Returns  2.1825  1.4558 

Average Portfolio Return (Rp) = 2.1825 
Average Portfolio Return (Rm) = 1.4558 
Portfolio Risk (σP) = 1.6223 
Market Risk (σm) = 0.9498 
Since portfolio A is fully diversified then it can be computed with a portfolio whose beta (β) can be found as follows:







Therefore, portfolio A is comparable to a portfolio whose
Beta is 1.708.
Expected monthly returns on such portfolio can be calculated as follows:

PR = Rf + β(Rm - Rf)
= 1% + 1.708 (1.4558% - 1.0000%)
= 1.7785%

Return due to the net selectivity = 

= 2.1825% - 1.7785%
= 0.404% per month

(ii) The returns due to higher risk assumed by the portfolio manager
= 1.7785% - 1.4558% = 0.3227% per month