No. 4: Risk and Return (10 Marks)

You have been given the expected return data shown in the first table on three assets

A, and Bover the period 2013-2016.

Expected return

Year Asset A Asset B

2013 16% 17%

2014 17 16

2015 18 15

2016 19 14

a) Calculate the expected return over the 4-year period for Asset A and Asset B.

b) Calculate the standard deviation of returns over the 4-year period for both

assets.

c)Use your findings in parts a and b to calculate the coefficient of variation for each of the TWO (A & B) alternatives.

d) Based on your findings in parts a, b and c, which asset will be preferred over

another and why?

e) If you equally invest in assets A and B by setting up a portfolio what will be the

portfolio return?