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Finance Homework Introduction to Finance
Week 7 Melicher / Norton
14th Edition / 2011
Chapter 12: P1, P2, P3, and P4
P1. From the information below, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset.
ASSET ANNUAL RETURNS
A) 5%, 10%, 15%, 4%
B) -6%, 20%, 2%, -5%, 10%
C) 12%, 15%, 17%
D) 10%, -10%, 20%, -15%, 8%, -7%
P2. Base upon your answers to question 1, which asset appears riskiest based on standard deviation? Based on coefficient of variation?
P3. Recalling the definitions of risk premiums from Chapter 8 and using the Treasury bill return in Table 12.4 as an approximation to the nominal risk-free rate, what is the risk premium from investing in each of the other asset classes listed in Table 12.4?
Table 12.4 - Historical Returns and Standard Deviation of Returns from Different Assets, 1928-2008:
Annual Average Return - Treasury Bills (3.8%), Treasury Bonds (5.4%), Stocks (11.1%), Inflation Rate (3.2%)
Standard Deviation - Treasury Bills (3.0%), Treasury Bonds (7.6%), Stocks (20.4%), Inflation Rate (4.0%)
P4. What is the real, or after-inflation, return from each of the asset classes listed in Table 12.4?
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P1. From xxx xxxxxxxxxxx below, xxxxxxx xxx average annual return, the variance, standard xxxxxxxxxx xxx coefficient of xxxxxxxxx xxx xxxx xxxxxxxxxxxx ANNUAL RETURNS A) 5%, xxxx xxxx xxxxx -6%, xxxx xxx -5%, 10% C) xxxx 15%, xxxxxx 10%, xxxxx xxxx -15%, 8%, xxx
A | B | C | D | |
xxxxxxx annual xxxxxx | 8.5% | xxxx | xxxxx | xx |
variance | xxxxxx | 119.2 | xxxx | x186.4 |
SD | 5.07 | 10.92 | xxxxx | x13.65 |
xx | xxxxxxx | xxxx | xxxxxx | xxxxxx |
| x | x | x | ||
| x |
P2. Base upon xxxx xxxxxxx xx question xx which xxxxx xxxxxxx xxxxxxxx based on standard deviation? Based xx xxxxxxxxxxx xx variation?
It xx known that x xxxxxxxx xxxxx xxxx have a high xxxxxxxx deviation xxxxx the xxxxxxxxx xx x stable blue chip xxxxx xxxx xx lower. xxxxx xx this, xxxxx x xx xxx most xxxxxxxx or xxxxxxxx xxx xxxxx x
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