# Expected return, standard deviation of returns

You have been given the return data shown in the first table on three assets?F, G, and H?over the period 2007-2010.

Expected return

Year Asset F Asset G Asset H

2007 17% 18% 15%

2008 18 17 16

2009 19 16 17

2010 20 15 18

Using these assets, you have isolated the three investment alternatives shown in the following table:

Alternative Investment

1 100% of asset F

2 50% of asset F and 50% of asset G

3 50% of asset F and 50% of asset H

1. Calculate the expected return over the 4-year period for each of the three alternatives.

2. Calculate the standard deviation of returns over the 4-year period for each of the three alternatives.

3. Use your findings in parts a and b to calculate the coefficient of variation for each of the three alternatives.

4. On the basis of your findings, which of the three investment alternatives do you recommend? Why?

https://brainmass.com/economics/investments/expected-return-standard-deviation-of-returns-171414

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Ques1

You have been given the return data shown in the first table on three assets?F, G, and H?over the period 2007-2010.

Expected return

Year Asset F Asset G Asset H

2007 17% 18% 15%

2008 18 17 16

2009 19 16 17

2010 20 15 18

Using these assets, you have isolated the three investment alternatives shown in the following table:

Alternative Investment

1 100% of asset F

2 50% of asset F and 50% of asset G

3 50% of asset F and 50% of asset H

1. Calculate the expected return over the 4-year period for each of the three alternatives.

2. Calculate the standard deviation of returns over the 4-year period for each of the three alternatives.

3. Use your findings in parts a and b to calculate the coefficient of variation for each of the three alternatives.

4. On the basis of your findings, which of the three investment alternatives do you recommend? Why?

1. Calculate the expected return over the 4-year period for each of the three alternatives.

Alternative 1 (100% of ...

#### Solution Summary

Expected return, standard deviation of returns, coefficient of variation for each of three investment alternatives over the 4-year period are calculated.

How to calculate the following- expected return and standard deviation of a portfolio, expected return of a stock using capital-asset-pricing model (CAPM),

Week 6 - Problem 1

10.6 Suppose the expected returns and standard deviations of stocks A and B are E(RA) = 0.17, E(RB) = 0.27, StdDevA = 0.12, and StdDevB = 0.21, respectively.

a. Calculate the expected return and standard deviation of a portfolio that is composed of 35 percent A and 65 percent B when the correlation between the returns on A and B is 0.6.

b. Calculate the standard deviation of a portfolio that is composed of 35 percent A and 65 percent B when the correlation coefficient between the returns on A and B is -0.6.

c. How does the correlation between the returns on A and B affect the standard deviation of the portfolio?

Week 6 - problem 2

Suppose the expected return on the market portfolio is 14.7 percent and the risk-free rate is 4.9 percent. Morrow Inc.stock has a beta of 1.3 . Assume the capital-asset-pricing model holds.

a. What is the expected return on Morrow's stock?

b. If the risk-free rate decreases to 4 percent, what is the expected return on Morrow's stock?

Week 6 - Problem 3

A portfolio that combines the risk-free asset and the market portfolio has an expected return of 22 percent and a standard deviation of 5 percent. The risk-free rate is 4.9 percent, and the expected return on the market portfolio is 19 percent. Assume the capital-asset-pricing model holds.

What expected rate of return would a security earn if it had a 0.6 correlation with the market portfolio and a standard deviation of 3 percent?

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