Problem 2 *** NOTE: No copying answers from other questions in this system are i
ID: 2720058 • Letter: P
Question
Problem 2
*** NOTE: No copying answers from other questions in this system are incorrect. IT IS VERY IMPORTANT TO COMPLETE THE ENTIRE EXERCISE. INCLUDE ALL CALCULATIONS. THANK
Below is a table with the expected return of three active - A, B and C - for the period from 2017 to 2020.
For these assets should evaluate the following:
Alternative 1 - Invest 100% in active A.
Alternative 2 - Investing in assets 50% A and 50% in the active B.
Alternative 3 - 50% invest in asset A and 50% in active C.
Instructions:
1. Calculate the expected return for four years for each of the three alternatives.
2. Calculate the standard deviation for four years for each of the three alternatives.
3. Use the results of the first two parts to calculate variation coefficient for each of the three alternatives.
4. Which of the three investment alternatives you recommend? Why?
*** NOTE: No copying answers from other questions in this system are incorrect. IT IS VERY IMPORTANT TO COMPLETE THE ENTIRE EXERCISE. INCLUDE ALL CALCULATIONS. THANK
Expected Return Active B Active A Year Active C 017 14% 13% 12% 013 17% 15% 12% 17% 2019 20% 12% 21% 2020 18% 19%Explanation / Answer
1)Alternative 1 will invest all its money in stock A, so it will have return equal to stock A’s return:
Year
Alternative 1
2017
14%
2018
15%
2019
20%
2020
21%
Alternative 2 invests 50% in stock A and 50% in stock B. Therefore, its expected return would be:
Year
Alternative 2
2017
13.50%
2018
16.00%
2019
16.00%
2020
18.50%
Alternative 3 invests 50% in stock A and 50% in stock C. Therefore, its expected return would be:
Year
Alternative 3
2017
13.00%
2018
13.50%
2019
18.50%
2020
20.00%
Year
Alternative 1
2017
14%
2018
15%
2019
20%
2020
21%
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