Question

and over the period 2016-2019: Portfolio analysis You have been given the expected retum data shown in the first table on three Using these assets, you have isolated the three investment tomatives shown in the folowing table Data Table . C e gerum over your period for each of the matte b. Calore the standard deviation of returns over the 4-year period for each of the three heatives G. Use your findings in parts and blocate the coeficient of varion for each of the three amaties d. On the basis of your findings, which of the investment w i ves do you think performed better over this period? Why? a. The expected retur over the year period formative 1s o und to complace) Click on the con located on the top right comer of the databe below in order to og het) The expected return over the 4-year period for atrative 2 is Pound to two decimal place) Asset F Expected Return Asset Asut The expected hum over the year period for alternative is (Pound to two decimal place) 2016 17 Print Done The tandard deviation of returns over the year period for alternative 20 . (Pound to wo decimales) The standard deviation of urns over the year period for at und wo decimal ) e. The court of varion for terrative tis Round to the decimal places) The comfort of variation for terrative 2 Pound to the dema ) The concert of oration for whom Pound to recip es) On the base of your fangs, which of the revivement traves do you recom ? Why Niemalive is the best choice because there we the best answers Data Tube O of 50% off and S H Enter your rower in each of the answer boxes.

Answer 1

First, we calculate the average return and standard deviation for each asset during the period.

D Asset H 13% B Asset F 2016 15% 2017 16% 2018 17% 8 2019 18% 9 Average 16.50% 10 Std. Dev. 1.29% C Asset G 16% 15% 14% 13% 14.50% 1.29% 14% 15% 16% 14.50% 1.29%

B Asset H 0.13 А 4 5 2016 6 2017 7 2018 8 2019 9 Average 10 Std. Dev. Asset F 0.15 0.16 0.17 0.18 =AVERAGE(B5:B8) ESTDEV(B5:B8) Asset G 0.16 0.15 0.14 0.13 AVERAGE(C5:08) ESTDEV(C5:08) 0.14 0.15 0.16 =AVERAGE(D5:08) =STDEV(D5:08)

a]

Alternative 1

Expected return = average return of Asset F = 16.50%

Alternative 2

Expected return of two-asset portfolio R_p = w₁R₁ + w₂R_2,

where R_p = expected return

w₁ = weight of Asset 1

R₁ = expected return of Asset 1

w₂ = weight of Asset 2

R₂ = expected return of Asset 2

Expected return = (50% * 16.50%) + (50% * 14.50%)

Expected return = 15.50%

Alternative 3

Expected return = (50% * 16.50%) + (50% * 14.50%)

Expected return = 15.50%

b]

Alternative 1

Standard deviation = standard deviation of Asset F = 1.29%

Alternative 2

Standard deviation for a two-asset portfolio σ_p = (w₁²σ₁² + w₂²σ₂² + 2w₁w₂Cov_1,2)^1/2

where σ_p = standard deviation of the portfolio

w₁ = weight of Asset 1

w₂ = weight of Asset 2

σ₁² = variance of Asset 1

σ₂² = variance of Asset 2

Cov_1,2 = covariance of returns between Asset 1 and Asset 2

Standard deviation = 0.46%

Alternative 3

Standard deviation = 1.21%

16% C13 fx = ((0.5^2)*(B10^2)+(0.5^2)*(C10^2)+(2*0.5*0.5*COVAR(B5:38,C5:08)))^(1/2) А в D E F G H I J Asset F Asset G Asset H 2016 15% 13% 2017 16% 15% 14% 2018 17% 14% 15% 2019 18% 13% 16% 9 Average 16.50% 14.50% 14.50% 10 Std. Dev. 1.29% 1.29% 11 Alternative Alternative Alternative 12 13 Std. Dev. 1.29% 0.46% 1.21% 8

D13 fax =((0.5^2)* (B10^2)+(0.5^2)*(D10^2)+(2*0.5*0.5*COVAR(B5:38,05:08)))^(1/2) A B C D E F G H I Asset F Asset G Asset H 2016 15% 16% 13% 2017 16% 15% 14% 2018 17% 14% 15% 18% 13% 16% 9 Average 16.50% 14.50% 14.50% 10 Std. Dev. 1.29% 1.29% 1.29% 11 Alternative Alternative Alternative 2019 13 Std. Dev. 1.29% 0.46% 1.21%!

c]

Coefficient of variation (C.V.) = standard deviation / expected return

Alternative 1 = 0.08

Alternative 2 = 0.03

Alternative 3 = 0.08

16% 2017 014 fx =C13/09 A В D Asset F Asset G Asset H 2016 15% 13% 16% 15% 14% 2018 17% 14% 15% 2019 18% 13% 16% 9 Average 16.50% 14.50% 14.50% 10 Std. Dev. 1.29% 1.29% 1.29% 11 Alternative Alternative Alternative 12 1.21% 13 Std. Dev. 14 C.v. 1.29% 0.08 0.46% 0.03 0.08

d]

Alternative 2 is the best choice because the assets are ........(it has has the lowest coefficient of variation).