Parts E and F only

1. We observe the following annual returns on a stock in the past three years. The annual risk- free rate is 5%. Year Realized Return | 2016 10% 2017 30% 2018 -10% (a) What is the arithmetic average stock return? (4%) (b) What is the geometric average stock return? (4%) (c) What are the sample mean and standard deviation of the stock return? (8%) (d) What is the stock's Sharpe ratio? (4%) (e) Jessica invests 50% of her money in stocks and 50% of her money in the risk-free asset. What are the expected return, standard deviation, and Sharpe ratio of her portfolio? (10 % (f) Jessica plans to invest $1 million in the stock and the risk-free asset. If her risk aversion A=5, how many dollars will she invest in the stock and how many dollars will she invest in the risk-free asset in her optimal portfolio? (10%)