Using the following returns, calculate the average returns, the variance, standard deviations and coefficient of variation for X and Y. Which stock is the least risky?

Homework 5

Using the following returns, calculate the average returns, the variance, standard deviations and coefficient of variation for X and Y. Which stock is the least risky?

Yr	Rx	Ry
1	8.00	-3.40
2	12.50	16.00
3	6.50	12.50
4	15.00	9.57

Using the following returns, calculate the expected returns, the variance, standard deviations and coefficient of variation for X and Y. Which stock is the least risky?

Prob	Rx	Ry
20%	8.00	-3.40
30%	12.50	16.00
25%	6.50	12.50
25%	15.00	9.57

You have been given the expected return data shown in the first table on three assets—F, G, and H—over the period 2018-2021

Year	Asset F	Asset G	Asset H
2018	7	12	12
2019	10	9	9
2020	15	21	4
2021	6.5	6	12.5

Using these assets, you have isolated the three investment alternatives shown in the following table.

Alternative	Investment

1	100% of asset F
2	35% of asset F and 65% of asset G
3	50% of asset F and 50% of asset H

Calculate the expected return over the 4-year period for each of the three alternative
Calculate the standard deviation of returns over the 4-year period for each of the three alternatives.
Use your findings in parts a and b to calculate the coefficient of variation for each of the three alternatives.
On the basis of your findings, which of the three investment alternatives do you recommend? Why?

Asset Z has an expected return of 11.8 percent and a beta of 1.10. If the risk-free rate is 3.3 percent, complete the following table for portfolios of Asset W and a risk-free asset. Illustrate the relationship between portfolio expected return and portfolio beta by plotting the expected returns against the betas. What is the slope of the line that results?

% of Portfolio in Z	Portfolio Expected Return	Portfolio Beta
0
25
50
75
100
125
150

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Common Error in Computing Variance

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Covariance and Correlation Pt. 1

Covariance and Correlation Pt. 2

Portfolio expected return

Components of Risk

Beta

Security Market Line/CAPM

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