Expected Return Year Asset F Asset G Asset H 2016 16% 17% 14% 2017 17 16 15 2018

Question

Expected Return Year Asset F Asset G Asset H 2016 16% 17% 14% 2017 17 16 15 2018 18 15 16 2019 19 14 17 Using these assets, you have isolated the three investment Alternatives shown in the following table Alternative Investment 1 100% of F 2 50% of f and G 3 50% of f and H a. calculate the expected return over the 4 year period for all three alternatives b. calculate the standard deviation of returns ov the 4 year periof for each of the three alternatives c. Use your finding in part a and b to calculate the coefficient of variation for the three alternatives d. on the basis of your findings, which of the three investment alternaives do you recommend, why? Expected Return Year Asset F Asset G Asset H 2016 16% 17% 14% 2017 17 16 15 2018 18 15 16 2019 19 14 17 Using these assets, you have isolated the three investment Alternatives shown in the following table Alternative Investment 1 100% of F 2 50% of f and G 3 50% of f and H a. calculate the expected return over the 4 year period for all three alternatives b. calculate the standard deviation of returns ov the 4 year periof for each of the three alternatives c. Use your finding in part a and b to calculate the coefficient of variation for the three alternatives d. on the basis of your findings, which of the three investment alternaives do you recommend, why?

Explanation / Answer

a. calculate the expected return over the 4 year period for all three alternatives

Alternative 1 - 100% of F

Expected return over the 4 year = (16 + 17 + 18 + 19)/4 = 17.5%

Alternative 2 - 50% of f and G

Expected return over the 4 year = (16.5 + 16.5+ 16.5 + 16.5)/4 = 16.5%

Alternative 2 - 50% of f and H

Expected return over the 4 year = (15+ 16 + 17 + 18)/4 = 16.5%

b. calculate the standard deviation of returns ov the 4 year periof for each of the three alternatives

Alternative 1 - 100% of F

standard deviation =(((16%-17.5%)^2 + (17%-17.5%)^2 +(18%-17.5%)^2 +(19%-17.5%)^2 )/(4-1))^(1/2)

standard deviation = 1.291 %

Alternative 2- 50% of F and G

standard deviation =(((16.5%-16.5%)^2 + (16.5%-16.5%)^2 +(16.5%-16.5%)^2 +(16.5%-16.5%)^2 )/(4-1))^(1/2)

standard deviation = 0

Alternative 3- 50% of F and H

standard deviation =(((15%-16.5%)^2 + (16%-16.5%)^2 +(17%-16.5%)^2 +(18%-16.5%)^2 )/(4-1))^(1/2)

standard deviation = 1.291%

c. Use your finding in part a and b to calculate the coefficient of variation for the three alternatives

Alternative 1

coefficient of variation = Standard deviation of Portfolio/Expected Return on Portfolio

coefficient of variation = 1.291/17.5

coefficient of variation = 0.0738

Alternative 2

coefficient of variation = Standard deviation of Portfolio/Expected Return on Portfolio

coefficient of variation = 0/16.5

coefficient of variation = 0

Alternative 3

coefficient of variation = Standard deviation of Portfolio/Expected Return on Portfolio

coefficient of variation = 1.291/16.5

coefficient of variation = 0.0782

d. on the basis of your findings, which of the three investment alternaives do you recommend, why?

Alternative 2 is better among all the three investment because its coeffecient of variation is lower among all

Year Asset F Asset G Expected Return of Portfolio Weight Expected return Weight Expected return [a] [b] [c] [d] [e] [f = b*c + d*e] 2016 50% 16 50% 17 16.5 2017 50% 17 50% 16 16.5 2018 50% 18 50% 15 16.5 2019 50% 19 50% 14 16.5

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.