Question

# you have been given the expected return data shown in the first table on three assetslong...

you have been given the expected return data shown in the first table on three

assetslong dash—​F,

​G, and

H long dash—over

the period​ 2016-2019:

 Expected Return Year Asset F Asset G Asset H 2016 16​% 17​% 14​% 2017 17​% 16​% 15​% 2018 18​% 15​% 16​% 2019 19​% 14​% 17​%

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

a.  The expected return over the​ 4-year period for alternative 1 is

17.50​%.

The expected return over the​ 4-year period for alternative 2 is

16.50​%.

The expected return over the​ 4-year period for alternative 3 is

16.50​%.

b.  The standard deviation of returns over the​ 4-year period for alternative 1 is

1.29​%.

The standard deviation of returns over the​ 4-year period for alternative 2 is

0.00​%.

The standard deviation of returns over the​ 4-year period for alternative 3 is

1.29​%.

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

Coefficient of variation is a statistical measure which compares the expected return that is mean and volatility of return that is standard deviation to calculate the risk-return trade off of investments. From the investor’s point of view, a lower coefficient of variation is desirable.

Use information of mean and standard deviation of alternative 1 to compute the coefficient of variation for alternative 1 using the equation as follows: Hence, coefficient of variation for alternative 1 is 7.37%.

Use information of mean and standard deviation of alternative 2 to compute the coefficient of variation for alternative 2 using the equation as follows: Hence, coefficient of variation for alternative 2 is 0%.

Use information of mean and standard deviation of alternative 3 to compute the coefficient of variation for alternative 3 using the equation as follows: Hence, coefficient of variation for alternative 3 is 7.82%.

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