14 Portfolio analysis You have been given the expected return data shown in the

Question

14 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. Expected return Asset H Asset G Asset F Year 14% 17% 16% 2016 16 2017 16 15 2018 2019 Using these assets, you have isolated the three investment alternatives shown in the following table. Investment Alternative 100% of asset F 50% of asset F and 50% of asset G 50% of asset F and 50% of asset H 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-year 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?

Explanation / Answer

Solution:

Expected Return of Asset (ERa) = r / n

r = 62

ERa (Asset F) = 70/4 = 17.50%

ERa (Asset G) = 62/4 = 15.50%

ERa (Asset H) = 62/4 = 15.50%

Expected Return of Portfolio (ERp) = [(ERa1) * (wa1)] + [(ERa2) * (wa2)]

where,

ERa = Expected Return of Asset,

wa = Weight of asset in the portfolio

Expected Return of Alternative 1 = (17.50%) * (100%) = 17.50%

Expected Return of Alternative 2 = [(17.50%) * (50%)] + [(15.50%) * (50%)] = 16.50%

Expected Return of Alternative 3 = [(17.50%) * (50%)] + [(15.50%) * (50%)] = 16.50%

Year Asset F Asset G Asset H 2016 16 17 14 2017 17 16 15 2018 18 15 16 2019 19 14 17 n = 4 r = 70 r = 62

r = 62

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.