Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider a risky asset with the following string of rates of returns in the previous 5 years. 5 years ago it returned -10%, 4 years

Consider a risky asset with the following string of rates of returns in the previous 5 years. 5 years ago it returned -10%, 4 years ago -20%, 3 years ago 30%, 2 years ago 0%, and 1 year ago 5%. In addition, there is a safe asset with a constant rate of return of 1% in each year. For the risky asset please compute and provide your computations:


a. Arithmetic average of returns and returns' standard deviation. 


b. Geometric average of returns. 


c. Excess returns in each year and risk premium. 


d. Sharpe ratio.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

To compute the required metrics for the risky asset lets calculate them step by step a Arithmetic average of returns and returns standard deviation Th... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investments

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

9th Edition

73530700, 978-0073530703

More Books

Students also viewed these Finance questions