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)