Question

The following information indicates percentage returns for stocks L and M over a 6-year period: Year Stock L Returns Stock M Returns 1 14.55% 20.72% 2 14.91% 18.68% 3 16.86% 16.57% 4 17.02% 14.71% 5 17.9% 12.77% 6 19.71% 10.42% In combining [L−M] in a single portfolio, stock M would receive 60% of capital funds.

Furthermore, the information below reflects percentage returns for assets F, G, and H over a 4-year period, with asset F being the base instrument: Year Asset F Returns Asset G Returns Asset H Returns 1 16.17% 17.39% 14.49% 2 17.04% 16.18% 15.37% 3 18.28% 15.25% 16.25% 4 19.12% 14.42% 17.35% Using these assets, you have a choice of either combining [F−G] or [F−H] in a single portfolio, on an equally-weighted basis. Required: Calculate the absolute percentage difference in the coefficient of variation (CV) between the stock portfolio [L−M] and the portfolio which outlines the optimal combination of assets. Answer

Answer 1

OPENING UP THE FORMULAS: