You manage an equity fund, Panda Eyes, with an expected risk premium of 10% and a standard deviation of 14%. The risk-free rate is 6%. Your client chooses to invest 60,000 of their portfolio in your equity fund and 40,000 in the risk-free rate.

(a) Discuss the historical record of government bonds and stocks in the last 100 years. Compare both the historical riskiness as well as their relative returns. Were there particular types of stocks that did better than others?

(b) Calculate the expected return and standard deviation of the return on your clients portfolio.

(c) Calculate the Sharpe Ratio of the clients portfolio.

(d) The historical data on your other investment fund, the Unethical Fund, is given in the table below. Calculate the historical arithmetic and geometric average return of the fund.

year price 2018 100 2019 98 2020 105 2021 117

(e) Assume that the returns you calculated in (d) are representative for the entire history of the Unethical fund. Provide the best estimate of the price of the fund in 2011.