b. Calculate the standard deviation of returns over the 4-year period for each o

Question

b.  Calculate the standard deviation of returns over the 4-year period for each of the

three alternatives.

c.  Use your findings in parts a  and b  to calculate the coefficient of variation for

each of the three alternatives.

d.  On the basis of your findings, which of the three investment alternatives do you

recommend? Why?

Portfolio analysis You have been given the expected return data shown in the first table on three assets-F, G, and H-over the period 2013-2016. Using these assets, you have isolated the three investment alternative shown in the following table. Calculate the expected return over the 4 year oeruid fir eacg if the three

Explanation / Answer

xpected return of Asset F= 17.5%
expected return of asset G= 15.5%
expected return of asset H= 15.5%

a. Calculate the expected return over the 4-year period for each of the three alternatives.
100% of asset F = 17.5%
50% of asset F and 50% of asset G = (.5x17.5)+(.5x15.5)= 16.5%
50% of asset F and 50% of asset H = 16.5%


standard deviation of Asset F=1.118
standard deviation of Asset G=1.118
standard deviation of Asset H= 1.118
b. Calculate the standard deviation of returns over the 4-year period for each of the three alternatives.
100% of asset F = 1.118
50% of asset F and 50% of asset G= 1.118
50% of asset F and 50% of asset H= 1.118

coefficient of variation= s.d/meanx100

coefficient of variation of asset F= 6.3886%
coefficient of variation of asset G= 7.2129%
coefficient of variation of asset h = 7.2129%

lower the coefficient of variation better will be the risk, therefore Alternative1, with 100% of asset F should be chosen.

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