Question: 1. (20 Points) Using the data below only, answer the following questions. Show your work. Portfolio D Portfolio W 2017 -25% -15% 2018 10% 10%

1. (20 Points) Using the data below only, answer the following questions. Show your work. Portfolio D Portfolio W 2017 -25% -15% 2018 10% 10% 2019 10% 5% 2020 25% 10% Long-term Data: E(R) 20% 12% Standard Deviation 30% 15% Assume that you invested $100 in both Portfolios D and W above in the beginning of 2017. What is the dollar value of each portfolio at the end of 2019 and 2020? ii. Calculate the arithmetic and geometric mean returns for portfolio D over the 4 years listed above (2017-2020) iii. Using a risk-free rate of 2% and the long-term data above, what are the Sharpe ratios for Portfolio D and W? iv. Portfolio D has an expected return E(R) that is much higher than Portfolio W based on long-term data. Why might you recommend Portfolio Was an investment to a client over Portfolio D? V. Upon recommending Portfolio W to your client instead of Portfolio D, they say, "I am not concerned with the 2017 under performance of Portfolio D. At the time Portfolio D was exposed to much more unsystematic risk than it has in the portfolio today". What is unsystematic risk? List a possible example for Portfolio D

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