Question

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 2016-2019: E. Using these assets, you have isolated the three investment alternatives shown in the following table: E. a. Calculate the expected return over the 4-year period for each of the three alternatives. b. Calculate the standard deviation of returns over the 4-vear 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? a. The expected return over the 4-year period for alternative 1 is %. (Round to two decimal place.)

Answer 1

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w @ v D * ENG 01:02 19-03-2070 24 JC189 . fix X IZ Y JA JB JC A 177 178 G H JD JE JF PORTFOLIO FG 19.5 (=50% *(JA179)+50%* (JB179)] 19.5 (=50%*(JA180)+50%* (JB180)] 19.5 (=50%*(JA181)+50%*(JB181)] 19.5 (=50*(JA182)+50%* (JB182)] ASSET 2016 2017 2018 2019 JG H I J PORTFOLIO FH 18.00 (=50%* (JA179)+50%*(JC179)] 19.00 (=50%*(JA180)+50%*(JC180)] 20.00 (=50%* (JA181)+50%* (JC181)] 21.00 (=50%* (JA182)+50%*(JC182)] 180 181 18 19 182 183 184 a EXPECTED RETURN FOR ALTERNATIVE 1 = 100% ASSET F = 20.50 (=AVERAGE(JA179:JA182)] EXPECTED RETURN FOR ALTERNATIVE 2 = 50% ASSET F AND 50% G = 19.50 (=AVERAGE(JD179:JD182)] 185 186 187 188 189 190 b 191 EXPECTED RETURN FOR ALTERNATIVE 3 = 50% ASSET F AND 50% H = 19.50 (=AVERAGE(JG179:JG182)] STANDARD DEVIATION FOR ALTERNATIVE 1 = 100% ASSET F = 1.29 [ESTDEV.S(JA179:JA182)] 192 STANDARD DEVIATION FOR ALTERNATIVE 2 = 50% ASSET F AND 50% G = 0.00 (ESTDEV.S(JD179:JD182)] 193 194 STANDARD DEVIATION FOR ALTERNATIVE 3 = 50% ASSET F AND 50% H = 1.29 (=STDEV.S(16179:JG182)] 195 196 C COEEFICIENT OF VARIATION = STANDARD DEVIATION /EXPECTED RETURN 197 198 199 200 FOR ALTERNATIVE 1 FOR ALTERNATIVE 2 FOR ALTERNATIVE 3 0.063 (=JF190/JF184) 0.000 (=JF192/JF186] 0.066 [=JF194/JF188] INTERVAL, NORMAL TREND ... MEAN STDV assignment DEAR prob sd cov TIME SERIES corr REGRESSION range CAMERA freq MATRIX HYPO ... :

w @ v D * : ENG 01:03 19-03-2020 24 fix JC218 A 195 196 C IN IZ JA JB JC JD JE G H I J C OEEFICIENT OF VARIATION = STANDARD DEVIATION /EXPECTED RETURN 197 198 199 FOR ALTERNATIVE 1 FOR ALTERNATIVE 2 FOR ALTERNATIVE 3 0.063 (=JF190/JF184] 0.000 (=JF192/JF186) 0.066 [=JF194/JF188) 200 201 202 203 d 204 ALTERNATIVE 2 IS THE BEST CHOICE BECAUSE ASSETS ARE NEGATIVELY CORRELATED AND COEEFICIENT OF VARIATION IS LOWEST = ZERO = ZERO RISK 205 206 207 208 209 210 211 212 213 214 215 216 217 218 ... MEAN STDV assignment DEAR prob sd COV TIME SERIEScorr REGRESSION range CAMERA INTERVAL, NORMAL TREND freq MATRIX HYPO... |