Consider the portfolios presented in the following table: Table 6: Returns Portfolio 1 Portfolio 2 Portfolio...

  

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Consider the portfolios presented in the following table: Table 6: Returns Portfolio 1 Portfolio 2 Portfolio 3 8.1% -2.1% -2.1% -6.8% 1.1% 6.0% 3.0% 3.0% -2.8% -5.2% 2.0% 4.8% 4.8% -0.1% -0.1% a. Assuming the stocks are equally weighted in the portfolio, calculate the average return for each of the 3 portfolios. Consider portfolios 1 and 2. a. How are they the same? b. How are they different? c. If you were to invest money in one of the portfolios (1 or 2) going forward (for the next period), which would you choose? Why? Using a spreadsheet program, you calculate the standard deviation of each portfolio and find: Table 7: Standard Deviation Portfolio 1 6.5% Portfolio 2 2.0% Portfolio 3 4.0% a. Do these results support or change your choice in part d above? b. Calculate the Sharpe Ratio for each of the portfolios (assume a risk-free rate of 0%). c. What does it tell you? Compare portfolios 2 and 3. a. Which would you choose based on the Mean Return alone? b. Based on the Sharpe Ratio? Consider the portfolios presented in the following table: Table 6: Returns Portfolio 1 Portfolio 2 Portfolio 3 8.1% -2.1% -2.1% -6.8% 1.1% 6.0% 3.0% 3.0% -2.8% -5.2% 2.0% 4.8% 4.8% -0.1% -0.1% a. Assuming the stocks are equally weighted in the portfolio, calculate the average return for each of the 3 portfolios. Consider portfolios 1 and 2. a. How are they the same? b. How are they different? c. If you were to invest money in one of the portfolios (1 or 2) going forward (for the next period), which would you choose? Why? Using a spreadsheet program, you calculate the standard deviation of each portfolio and find: Table 7: Standard Deviation Portfolio 1 6.5% Portfolio 2 2.0% Portfolio 3 4.0% a. Do these results support or change your choice in part d above? b. Calculate the Sharpe Ratio for each of the portfolios (assume a risk-free rate of 0%). c. What does it tell you? Compare portfolios 2 and 3. a. Which would you choose based on the Mean Return alone? b. Based on the Sharpe Ratio?

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To calculate the average return for each of the three portfolios we sum the returns of individual stocks in each portfolio and divide by the number of ... View the full answer