Consider the following returns for two investments, A and B, over the past four

Question

Consider the following returns for two investments, A and B, over the past four years:

Investment 1: 3% 11% –6% 11%

Investment 2: 8% 19% –10% 13% a-1.

a1. Calculate the mean for each investment. (Round your answers to 2 decimal places.)

Mean: Investment 1 percent

Investment 2 percent

a-2. Which investment provides the higher return?

Investment 1

Investment 2

b-1. Calculate the standard deviation for each investment. (Round your answers to 2 decimal places.)

Standard Deviation Investment 1 Investment 2 b-2. Which investment provides less risk?

Investment 1

Investment 2

c-1. Given a risk-free rate of 1.2%, calculate the Sharpe ratio for each investment. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Sharpe Ratio Investment 1 Investment 2

c-2. Which investment has performed better? Investment 1 Investment 2

Explanation / Answer

Consider the following returns for two investments, A and B, over the past four years:

Investment 1: 3% 11% –6% 11%

Investment 2: 8% 19% –10% 13% a-1.

a1. Calculate the mean for each investment. (Round your answers to 2 decimal places.)

Mean: Investment 1     4.75 percent

Investment 2      7.5 percent

Descriptive statistics

A

B

count

4

4

mean

4.7500

7.5000

sample standard deviation

8.0984

12.5033

sample variance

65.5833

156.3333

a-2. Which investment provides the higher return?

Investment 1

Investment 2

b-1. Calculate the standard deviation for each investment. (Round your answers to 2 decimal places.)

Standard Deviation Investment 1 Investment 2 b-2. Which investment provides less risk?

Investment 1     8.0984

Investment 2    12.5033

c-1. Given a risk-free rate of 1.2%, calculate the Sharpe ratio for each investment. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Sharpe Ratio Investment 1

(4.75-1.2)/8.0984 = 0.438358

Investment 2

=(7.5-1.2)/12.5033 = 0.503867

c-2. Which investment has performed better?

Investment 1

Investment 2

Descriptive statistics

A

B

count

4

4

mean

4.7500

7.5000

sample standard deviation

8.0984

12.5033

sample variance

65.5833

156.3333

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