ASSET D appears the riskiest based in standard & coefficient.

THE EXTERNAL ENVIRONMENT, INTERNAL PROFILE, AND SWOT
July 16, 2021
what is the stock’s expected total return for the coming year?
July 16, 2021

ASSET D appears the riskiest based in standard & coefficient.

P1. From the information below, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset.

Asset Annual Returns
A 5%,10%,15%,4%
B -6%,20%,2%,-5%,10%
C 12%,15%,17%
D 10%,-10%,20%,-15%,8%,-7%

 

  Asset A Asset B Asset C Asset D
  5% -6% 12% 10%
  10% 20% 15% -10%
  15% 2% 17% 20%
  4% -5%   -15%
    10%   8%
        -7%
Average 9% 4% 15% 1%
Variance 0.0026 0.0119 0.0006 0.0186
Std. dev 5.07% 10.92% 2.52% 13.65%
Coeff of var. 0.60 2.60 0.17 13.65

 

P2. Based upon your answers to question 1, which asset appears riskiest based on standard deviation? Based on coefficient of variation?

                      ASSET D appears the riskiest based in standard & coefficient.

P3. Recalling the definitions of risk premiums in Chapter 8 and using the Treasury bill return in Table 12.4 as an approximation to the nominal risk-free rate, what is the risk premium from investing in each of the other asset classes listed in Table 12.4?

P4. What is the real, or after-inflation, return from each of the asset classes listed in table 12.4?

  Treasury Bill Treasury Bond Stocks Inflation  Rate
Annual Ave Return 3.8% 5.4% 11.1% 3.2%
Standard Deviation 3.0% 7.6% 20.4% 4.0%

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