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Table 1                  &...

Table 1                                                                                                                       Estimated Total Returns                                                                                                 
State of the Economy Probability T-Bond SETX Golden S&P 500
Recession 5% 5% -19% 20% -14%
Below Average 15% 5% 2% 13% 3%
Average 45% 5% 9% 10% 11%
Above Average 25% 5% 34% 5% 22%
Boom 10% 5% 25% -5% 33%

Calculate the expected rate of return on each of the four alternatives listed in Table 1. Based solely on expected returns, which of the potential investments appears best? Based on the coefficient of variation? Based on the Sharpe's Ratio?

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Answer #1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A B C E G H 1 2 State of Economy T-Bond 3 Probability Golden S&P 500 SETX Recession 5% 5% 19% 20% -14% Below Average 5 15% 5%

Cell reference -

A В с D E F G 1 2 State of Economy 3 Probability Т-Bond Golden S&P 500 SETX 0.05 Recession 0.2 4 0.05 -0.19 -0.14 0.05 Below

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.

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