Question
Problem 4 (19 marks): Consider the following historical returns on two investments A and B. The average risk-free rate during the 2012-2016 period was equal
Problem 4 (19 marks): Consider the following historical returns on two investments A and B. The average risk-free rate during the 2012-2016 period was equal to 1%. Annual return Year Investment A Investment B 2016 6% 3% 2015 8% 6% 2014 10% 4% 2013 25% 10% 201 2 -8% -2% a) Calculate the arithmetic average return and the risk premium for each investment. Which investment is likely to be is riskier? Explain. (9 marks) b) Calculate the geometric average return for each investment. (4 marks)
c) Calculate the standard deviation for each investment using the arithmetic average return. (6 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started