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You have been given the following return​ data, Expected Return Year Asset F Asset G Asset...

You have been given the following return​ data,

Expected Return

Year

Asset F

Asset G

Asset H

2018

14​%

18​%

15​%

2019

15​%

17​%

16​%

2020

16​%

16​%

17​%

2021

17​%

15​%

18​%

​, on three assets—​F, G, and H—over the period 2018–2021.

Using these​ assets, you have isolated three investment​alternatives:

Alternative Investment

1 100% of asset F

2 50% of asset F and 50% of asset G

3 50% of asset F and 50% of asset H

a. Calculate the portfolio return over the​ 4-year period for each of the three alternatives.

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

c. On the basis of your findings in parts a and b​, which of the three investment alternatives would you​ recommend? Why?

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Answer #1

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Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E ゴWrap Text ta copy. в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 C Paste Conditional Format CeInsert Delete Format Formatting, as Table w styles. ▼ ㆆ ▼ Sort &Find & 2 ClearFe Select Edting Format Painter Clipboard JF41 IY Alignment Number Cells Formula Bar iz JA JC JD JE JF JG JH JK 41 42 43 ASSET 45 46 47 48 49 2016 2017 2018 2019 15 16 17 17 16 15 15 16 17 18 EXPECTED RETURN FOR ALTERNATIVE 1-100% ASSET F = 15.50 AVERAGE(JF45:JF48) 51 52 53 54 EXPECTED RETURN FOR ALTERNATIVE 2 = 50% ASSET F AND 50% G = 16.00 AVERAGE(JF55:JF58) NOTE ASSET 50%(ASSET F) + 50%(ASSET G) 56 57 58 59 14 2016 2017 2018 2019 16 16 16 16 Sheet1 . Sheet4 . PV FV DIVIDEND , EMV | MEAN STDV DEAR Sheet2 TIME SERIEScom REGRESSIONCAMERAEXP RETURN TREND MATRIXIN 14-01-2019Home nert Page Layout Formulas Data Review View dd-Ins s Cut ta copy ▼ Σ AutoSum ー E ゴWrap Text B า 프 . Ej-., Δ. : r_一 逻锂函Merge & Center. $, % , 弼,8 Conditional Format CeInsert Delete Format Formatting, as Table w styles. ▼ ㆆ ▼ Sort &Find & 2 ClearFe Select Edting Format Painter Clipboard Alignment Number Cells F68 Formula Bar IY iz JA JC JD JE JF JG JH JK 59 60 61 62 63 64 65 EXPECTED RETURN FOR ALTERNATIVE 3-50% ASSET F AND 50% H- 16.00 AVERAGE(JF63:JF66) NOTE ASSET 50%(ASSET F) + 50%(ASSET H) 2016 2017 2018 2019 15.5 16.5 17.5 67 68 69 70 71 72 73 74 75 76 b PART 2 ASSET 2016 2017 2018 2019 15 16 17 17 16 15 15 16 17 18 STANDARD DEVIATION FOR ALTERNATIVE 1-100% ASSET F = 1.29 STDEV.S(JF71:JF74) /4 Sheet1 . Sheet4 . PV FV DIVIDEND , EMV I MEAN STDV DEAR Sheet2. COV TİME SERIES corr REGRESSION CAMERAEXP RETURN ! TREND MATRIXIN 14-01-2019Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E ゴWrap Text aCopy B า 프 . Ej-., Δ. : r_一 逻锂函Merge & Center. $, % , 弼,8 Paste Conditional Format CeInsert Delete Format Formatting, as Table w styles. ▼ ㆆ ▼ Sort &Find & 2 ClearFe Select Edting Format Painter Clipboard UF93 IY Alignment Number Cells Formula Bar iz JA JC JD JE JF JG JH JK 75 76 b STANDARD DEVIATION FOR ALTERNATIVE 1-100% ASSET F- 1.29 STDEV.S(JF71:JF74) 0 STDEV.S(JF81:JF84) 50%(ASSET F) + 50%(ASSET G) 78 79 80 81 82 83 84 85 86 87 STANDARD DEVIATION FOR ALTERNATIVE 2-50% ASSET F AND 50% G- NOTE ASSET 2016 2017 2018 2019 16 16 16 16 STANDARD DEVIATION FOR ALTERNATIVE 3-50% ASSET F AND 50% H- 1.29 STDEV.S(JF89:JF92) ASSET 50%(ASSET F) + 50%(ASSET H) 89 90 91 92 93 14 2016 2017 2018 2019 15.5 16.5 17.5 Sheet1 . Sheet4 . PV FV DIVIDEND , EMV | MEAN STDV DEAR Sheet2 TIME SERIES coIm REGRESSIONCAMERAEXP RETURN TREND MATRIXIN 14-01-2019

Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E ゴWrap Text ta copy. в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 C Paste Conditional Format CeInsert Delete Format Formatting as Table Styles2 Clear Sort &Find & Format Painter Clipboard F110 IY Font Alignment Number Cells Edting Formula Bar iz JA JB JC JD JE JF JG JH JK JL 93 94 95 96 C 97 98 COEEFICIENT OF VARIATION STANDARD DEVIATION /MEAN FOR ALTERNATIVE 1 FOR ALTERNATIVE 2 FOR ALTERNATIVE 3 0.083 1.2910/15.5 0.000 0/16 0.081 1.2910/16 100 101 102 103 d 104 105 106 107 108 109 110 WE WILL PREFER ALTERNATIVE 2 AS STANDARD DEVIATION IS ZERO AS IT HAS ZERO CV, WHICH IS BEST OPTION NO RISK 4 SheetiSheet4PV FV DIVIDENDEMV MEAN STDV DEAR Sheet2 TIME SERIEScom REGRESSIONCAMERAEXP RETURN TREND MATRIXIN 03:35 14-01-2019

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