AVERAGE RETURN

(A) What is the average return for an asset that had annual returns over the past 10 years, respectively, of 10 percent, 2 percent, 8 percent, 4 percent, 6 percent, 2 percent, 10 percent, 8 percent, 6 percent and 4 percent? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL).

RISK AND RETURN

(B) Candy is buying only one investment asset and her choice is the asset in (QUESTION A), or an asset that paid an average return over the past ten years of 5.8 percent and had a standard deviation of 0 percent. What factors will affect Candys decision? Calculate the variance and standard deviation of the returns from (QUESTION A). (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL).

RISK AND RETURN

(C) Consider the expected return and standard deviation of these four stocks (chart below). If investors are buying only one stock, which one of these stocks would no investor buy? Why? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL).

STOCK	EXPECTED RETURN	STANDARD DEVIATION
A	6%	1%
B	7%	1.5%
C	7%	2%
D	8%	2%

ADDING AN ASSET TO A PORTFOLIO -

(D) Your current portfolio's cash returns over the past three years look like this:

	YEAR 1	YEAR 2	YEAR 3	E(CF)	o
Your Portfolio CF's	120	100	80	100	20

The past three years are representative of a good year, an average year, and a bad year for you. You are considering adding one of these two equally priced assets to your portfolio:

	YEAR 1	YEAR 2	YEAR 3	E(CF)	o
New Asset 1	6	6	6	6	0
New Asset 2	2	6	10	6	4

Which asset would be best for you? Calculate the portfolio expected return, variance, and standard deviation when adding each new asset? (PLEASE INCLUDE FORMULAS USED TO SOLVE PROBLEM FOR EXCEL).