Date

BSE-308

RANBAXY

DR REDDY

3/30/2004
6/28/2004

5520.44
4837.6

465.83
460.45

485.98
371.8

9/30/2004
12/30/2004
3/31/2005
6/30/2005
9/30/2005
12/30/2005
3/31/2006
6/30/2006
9/29/2006
12/29/2006

5583.61
6602.69
6605.04
7193.85
8650.17
9323.25
11183.48
10609.25
12454.29
13786.91

545.33
615.9
501.93
525.83
491.25
362.35
431.6
356.4
439.85
391.85

368.43
424.73
369.55
376.6
426.28
489.25
710.15
637
731.3
811.2

3/30/2007
6/29/2007
9/28/2007
12/28/2007
3/31/2008
6/30/2008
9/29/2008
12/29/2008

14650.51
16564.23
20216.72
15563.15
13802.22
13461.6
12860.43
9903.46

352.6
354.95
434.4
415.6
438.75
523.05
255.85
232.2

727.5
655.95
649
713.6
590.95

3/30/2009
6/29/2009
9/25/2009
12/31/2009

9568.14
14493.84
16693
17464.81

158.35
258.7
409.6
517.45

464.35
781.2
985.85
1143.8

3/26/2010
6/28/2010
9/30/2010

17590.17
17774.26
20069.12

475.7
455.8
557.15

1284.3

670.55
502.7
466.4

1477.45

1440.3

Single Period
Return BSE308

Single
Period
Return
RAN

Single
Period
Return
DRR

-0.123693039
0.154210766
0.182512747
0.000355916
0.089145562
0.202439584
0.077811188
0.199525916
-0.051346271
0.173908617

-0.01155
0.184341
0.129408
-0.18505
0.047616
-0.06576
-0.26239
0.191114
-0.17424
0.234147

-0.23495
-0.00906
0.152811
-0.12992
0.019077
0.131917
0.14772
0.451507
-0.10301
0.148038

0.107000881
0.062639127
0.130624804
0.220504666
-0.230184224
-0.113147403
-0.024678639
-0.044658139

-0.10913 0.109257
-0.10017 -0.10318
0.006665 -0.09835
0.223834
-0.0106
-0.04328 0.099538
0.055703 -0.17188
0.192137 0.134698
-0.51085 -0.25032

-0.229927771 -0.09244 -0.07221

-0.033858874 -0.31804
-0.0044
0.51480225 0.633723 0.682352
0.151730666 0.583301 0.261969
0.046235548 0.263306 0.160217
0.007177862 -0.08068 0.122836
0.010465504 -0.04183 0.150393
0.129111423 0.222356 -0.02514

Systemetic risk
Total Asset Risk = Systemetic risk risk of the asset + Unsystemetic risk of the asset
SYSTE. RISKx = CORxm^2 * VARx
Variance
or, = SQRT(SYSTE. RISKx)
SD
BSE-308
RPL
MRPL
Variance

0.02444016

0.016150367

0.000935806 Using Beta from Cor.

SYSTE. RISK (SD)

0.15633349

0.127084092

0.030590952

Unsys. risk

0.125852143

0.172786338

Since Unsystemetic risk could be diversified without significant cost, so it is not compensated for.
Risk Premium
Compensation for taking systemetic risk = risk premium
Risk free Asset return = Rf
Return on market protfolio = Rm

7.50%
18.67% Historical or estimated (Assumed)

Risk Premium = Rm-Rf

11.17%

CAPM
Apart from compensating for the risk free opportunity to invest,
market will compensate only for the systemetic risk assumed.
Therefore,

Required return

CAPM

Rx=Rf+(Rm-Rf)bx
RPL
MRPL
0.14195283
0.09544412

Regres
SUMM

Regre
Multip
R Squa

ANOVA

Regres
Residu
Total

Interce
MRPL

Risk and return of a single security portfolio

Return over the period (1997-2000)

BSE-308 RPL

BSE-308 RPL
MRPL
Total security specific risk
0.156333 0.252936 0.203377
Std.Dev.

1.663144

-0.052258283

Risk and return of two asset portfolio

Portfolio risk of two assets
VARp=VARx*Wx^2+VARy*Wy^2+2*Wx*Wy*COVxy
VARp=VARx*Wx^2+VARy*Wy^2+2*Wx*Wy*CORxy*SDx*SDy

COVxy =**Rx-E(Rx)+ * *Ry-E(Ry)++/(n-1)

COVxy = CORxy*SDx*SDy
BSE-308
Cov.
BSE-308
RPL
MRPL

RPL

MRPL

0.0235
Variance
0.014649 0.061516
SD
0.004473 0.021049 0.039771 SD reduction

BSE +
BSE + MRPL
RPL
0.029429
0.018687225
0.171549
0.136701226
0.033086
0.043154163

Optimum weights for MVP

Wx=(VARy-COVxy)/(VARx+VARy-2COVxy)
BSE + RPL
BSE + MRPL

Minimum Variance portfolio

0.834386422

0.648815819

Portfolio risk using MVP weights

BSE +
BSE + MRPL
RPL
Variance
0.022819
0.017428082
SD
0.151059
0.132015463
SD reduction
0.02049
0.004685763

CORxy = COVxy /(SDx*SDy)

Corr.
BSE-308
RPL
MRPL

BSE-308
1
0.502435

RPL

MRPL
1

0.150415 0.383558

Beta Estimation
Beta From Cov.
Beta from Corr.
Beta of market

bx=COVxm/VARm
bx=CORxm*SDx*SDm/VARm
bm=CORmm*SDm*SDm/VARm

0.599399
0.812904
1

0.18302703
0.195677541

Regression Analysis
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.502435
R Square
0.252441
Adjusted R Square
0.221293
Standard Error
0.208741
Observations
26
ANOVA
df
SS
MS
Regression
1 0.353134 0.353134
Residual
24 1.045743 0.043573
Total
25 1.398877
Coefficients
Standard Error t Stat
Intercept 0.038438 0.040944 0.938789
RPL
0.927143 0.325674 2.84684

F
Significance F
8.104499196 0.008903

P-value
Lower 95%
0.357191894 -0.04607
0.008902861 0.254984

Upper 95%
0.122942953
1.599301529

Regression
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.150415
R Square
0.022625
Adjusted R Square
-0.0181
Standard Error
0.243447
Observations
26
ANOVA
df
Regression
Residual
Total

Intercept
MRPL

SS
MS
1 0.032926 0.032926
24 1.422391 0.059266
25 1.455317

Coefficients
Standard Error t Stat
-0.03205 0.047752
-0.6711
0.283104 0.379822 0.745359

F
Significance F
0.555559947 0.463292

P-value
Lower 95%
0.508567893
-0.1306
0.463292488 -0.50081

Upper 95%
0.066509001
1.067018981

period (1997-2000)
MRPL

Average rate of return (1997-2000)

n=
years
4 quarters
BSE
RPL
MRPL
0.062787 0.033728 0.08276

2.475308

Compounded annual rate of

20

Portfolio return of two assets over the period (1997-2000)

+2*Wx*Wy*COVxy
+2*Wx*Wy*CORxy*SDx*SDy
RPL +
MRPL
0.036859
0.191987
0.036169

Wx*E(Rx)+Wy*E(Ry)
BSE +
BSE +
MRPL +
RPL
MRPL
RPL
0.805443 2.069226 1.211525

where, Wy=1-Wx
RPL + MRPL
0.321206195

RPL +
MRPL
0.034837
0.186648
0.005339

6605.04
17590.17
BSE
0.216407

Lower 95.0% Upper 95.0%

-0.04607 0.122942953
0.254984 1.599301529

Lower 95.0% Upper 95.0%

-0.1306 0.066509001
-0.50081 1.067018981

Compounded annual rate of return (1997-2000)

501.93
475.7

369.55 Purchase
1284.3 Sale price
RPL
MRPL
-0.01068 0.282917

years
n=