P1. from the information below, compute the average annual return,
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P1. From the information below, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset.
|
Asset |
Annual Returns |
|
A |
5%,10%,15%,4% |
|
B |
-6%,20%,2%,-5%,10% |
|
C |
12%,15%,17% |
|
D |
10%,-10%,20%,-15%,8%,-7% |
|
|
Asset A |
Asset B |
Asset C |
Asset D |
|
|
5% |
-6% |
12% |
10% |
|
|
10% |
20% |
15% |
-10% |
|
|
15% |
2% |
17% |
20% |
|
|
4% |
-5% |
|
-15% |
|
|
|
10% |
|
8% |
|
|
|
|
|
-7% |
|
Average |
9% |
4% |
15% |
1% |
|
Variance |
0.0026 |
0.0119 |
0.0006 |
0.0186 |
|
Std. dev |
5.07% |
10.92% |
2.52% |
13.65% |
|
Coeff of var. |
0.60 |
2.60 |
0.17 |
13.65 |
P2. Based upon your answers to question 1, which asset appears riskiest based on standard deviation? Based on coefficient of variation?
ASSET D appears the riskiest based in standard & coefficient.
P3. Recalling the definitions of risk premiums in Chapter 8 and using the Treasury bill return in Table 12.4 as an approximation to the nominal risk-free rate, what is the risk premium from investing in each of the other asset classes listed in Table 12.4?
P4. What is the real, or after-inflation, return from each of the asset classes listed in table 12.4?
|
|
Treasury Bill |
Treasury Bond |
Stocks |
Inflation Rate |
|
Annual Ave Return |
3.8% |
5.4% |
11.1% |
3.2% |
|
Standard Deviation |
3.0% |
7.6% |
20.4% |
4.0% |
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