Question
Consider the performance of two securities, J and K over the five-year period from 2000 to 2004. The annual return earned on each one of
Consider the performance of two securities, J and K over the five-year period from 2000 to 2004. The annual return earned on each one of them is as provided in the table below:
Year | J | K |
% | % | |
2000 | -30.0 | 6.4 |
2001 | 55.9 | -21.1 |
2002 | 15.7 | -10.0 |
2003 | 75.9 | 35.0 |
2004 | 5.7 | 15.6 |
Required:
Compute the following:
The Arithmetic Mean returns of both securities over the 5-year holding period.
[02 Marks]
The Geometric Mean return of both securities over the 5-year holding period.
[03 Marks]
Assuming your organization had K100 million to invest on 01st January, 2000. If this was invested equally in the two securities, what terminal value would be accumulated after 5 years with annual compounding?
[05 Marks]
What level of volatility would your investments be exposed to over the holding period for each security?
[05 Marks]
Evaluate the performance of the securities individually. With hindsight, which security would you have advised management to invest in if it had to choose only one?
[05 Marks]
Total 20 Marks
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