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	14.63%	20.94%
2	14.15%	18.42%
3	16.04%	16.86%
4	17.51%	14.85%
5	17.7%	12.61%
6	19.12%	10.92%

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%	17.45%	14.06%
2	17.34%	16.32%	15.12%
3	18.09%	15.26%	16.02%
4	19.24%	14.4%	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.

Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.

Answer 1

In order to find the coefficient of variation, we need to use formula = Divide the standard deviation by the mean

Time	Stock L	Stock M		Asset F	Asset G	Asset H
1	14.63%	20.94%		16.17%	17.45%	14.06%
2	14.15%	18.42%		17.34%	16.32%	15.12%
3	16.04%	16.86%		18.09%	15.26%	16.02%
4	17.51%	14.85%		19.24%	14.40%	17.35%
5	17.70%	12.61%
6	19.12%	10.92%
Weight	40.00%	60.00%		50.00%	50.00%	50.00%

Time	Return of [L-M]	Return of [F-G]	Return of [F-H]
1	18.42%	16.81%	15.12%
2	16.71%	16.83%	16.23%
3	16.53%	16.68%	17.06%
4	15.91%	16.82%	18.30%
5	14.65%
6	14.20%
Standard Deviation	1.40%	0.06%	1.16%
Mean	16.07%	16.78%	16.67%
Coefficient of Variation	8.68%	0.38%	6.97%
Percentage Difference	8.31%