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Suppose you held a stock A in 2014-2016 (3 years). The following table lists detailed infor- mation about this asset with time weights (probabilities). And
Suppose you held a stock A in 2014-2016 (3 years). The following table lists detailed infor- mation about this asset with time weights (probabilities). And the risk-free rate was 5%. Period Probability One-year HPR Ending price Beginning price 2014 1/3 17% $130 $115 2015 1/3 23% $155 $130 2016 1/3 -15% $120 $155 (a) Compute the geometric (time-weighted) average return, arithmetic average return and estimated standard deviation. Explain why we usually use standard deviation as measure- ment of risk instead of estimated variance. (b) Calculate Sharpe ratio. (c) What is the dividend paid by stock A for each year? Also, calculate the capital gains yields and the dividend yields for each year. Suppose you held a stock A in 2014-2016 (3 years). The following table lists detailed infor- mation about this asset with time weights (probabilities). And the risk-free rate was 5%. Period Probability One-year HPR Ending price Beginning price 2014 1/3 17% $130 $115 2015 1/3 23% $155 $130 2016 1/3 -15% $120 $155 (a) Compute the geometric (time-weighted) average return, arithmetic average return and estimated standard deviation. Explain why we usually use standard deviation as measure- ment of risk instead of estimated variance. (b) Calculate Sharpe ratio. (c) What is the dividend paid by stock A for each year? Also, calculate the capital gains yields and the dividend yields for each year
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