- You have been following a stock for 4 months and the following is its past ret
ID: 2732912 • Letter: #
Question
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You have been following a stock for 4 months and the following is its past return
Year 1: 2%
Year 2: 11%
Year 3: 11%
Year 4: -1%
What is the expected return based on historical data? (Put answer in decimal points instead of percentage)
-A portfolio with a 15% standard deviation generated a return of 5% last year when risk free T-bills were paying 1%. You are considering adding one more stock to your portfolio, the stock will boost the portfolio’s expected return to 15% while also increases the standard deviation to 30%. If you are interested in the best risk versus return trade-off, should you add the stock?
Yes because it increases the portfolio's Sharpe ratio to 0.50
Yes because it increases portfolio's Sharpe ratio to 0.467
Yes because it increases portfolio's return to 15%.
No because it increases the risk of the portfolio
No because it decreases the portfolio's sharpe ratio to 0.267
- You calculated that the average return of your portfolio is 6% and the standard deviation is 19%, what is the value at risk (VaR) at 5% for your portfolio?
- You have been following a stock for 3 months and the following is its past return
Year 1: 7%
Year 2: 14%
Year 3: 7%
What is the standard deviation of the stock based on the historical data? (Put the answer in decimal points instead of percentage)
- The returns of a mutual fund manager for the past 3 years are the following:
Year 1: 7%
Year 2: 14%
Year 3: -3%
What is the geometric average return of the fund for the past three years? Put return in decimal points instead of percentage.
- Your investment has a 30% chance of earning a 11% rate of return, a 40% chance of earning a 11% rate of return and a 30% chance of earning -7%. What is the standard deviation on this investment? (Put your answers in decimal points instead of percentage)
A.Yes because it increases the portfolio's Sharpe ratio to 0.50
B.Yes because it increases portfolio's Sharpe ratio to 0.467
C.Yes because it increases portfolio's return to 15%.
D.No because it increases the risk of the portfolio
E.No because it decreases the portfolio's sharpe ratio to 0.267
Explanation / Answer
sOLUTION 1:
Expected return based on historical data is the average of past return. So basically we need to compute average of the past returns:
Average return = sum of returns/ no. of years
Average return = (2%+11%+11%-1%)/ 4
= 23%/ 4
= 5.75%
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