Reference no: EM13451774

1.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%

 

	Asset A	Asset B	Asset C	Asset D
	5%	-6%	12%	10%
	10%	20%	15%	-10%
	15%	2%	17%	20%
	4%	-5%		-15%
		10%		8%
				-7%
Average	9%	4%	15%	1%
Variance	0.0026	0.0119	0.0006	0.0186
Std. dev	5.07%	10.92%	2.52%	13.65%
Coeff of var.	0.60	2.60	0.17	13.65

2.Based upon your answers to question 1, which asset appears riskiest based on standard deviation? Based on coefficient of variation?

                      ASSET D appears the riskiest based in standard & coefficient.

3.Recalling the definitions of risk premiums in 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?

4.What is the real, or after-inflation, return from each of the asset classes listed in table 12.4?

	Treasury Bill	Treasury Bond	Stocks	Inflation Rate
Annual Ave Return	3.8%	5.4%	11.1%	3.2%
Standard Deviation	3.0%	7.6%	20.4%	4.0%