P1. 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 P2. 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. P3. 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? P4. 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%
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