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Problem 1 (15 marks): Consider the following historical returns on two investments A and B. The average risk-free rate during the 2015-2019 period was equal
Problem 1 (15 marks): Consider the following historical returns on two investments A and B. The average risk-free rate during the 2015-2019 period was equal to 3%. Annual return (%) Year Investment A Investment B 2019 -5% 5% 2018 -20% -2% 2017 30% 15% 2016 40% 20% 2015 10% 5% a) Calculate the arithmetic average return and the risk premium for each investment. Which investment is likely to be is riskier? Briefly explain. (6 marks) b) Calculate the geometric average return for each investment. (3 marks) c) Calculate the standard deviation for each investment using the arithmetic average return. (6 marks)
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