Below you are given the rate of return for an asset for each year 2017 through 2020. Use this information to answer the questions below.

2017  - 5.5% 

2018 - 2.4% 

2019 - 3.2% 

2020 - 12.0% 

(a) Calculate the arithmetic and geometric average return over the 4 year period. 

(b) If you invested $1000 in this asset at the beginning of 2017, how much would it be worth at the end of 2020?

Part 2: Portfolio Expected Return and Variance. 

You live in a world where there are two assets (Asset A and Asset B) and there are two states of nature ("Rain" and "Shine"). You are told that "Rain" and "Shine" will occur with probability 0.5 and 0.5 each. Below are the returns on the asset under each state of nature

                   "Rain"     Shine" 

Asset A -       4%        16% 

Asset B          2%         6%

 (a) Calculate the Expected Return and Standard Deviation of Returns for each Asset

 (b) Assume that you invest $500 in Asset A and $1000 in Asset B, what will be the Expected Return and Standard Deviation of Returns for the resulting portfolio? 

Answer rating: 100% (QA)

Solution a To calculate the arithmetic and geometric average return over the 4 year period you can u... View the full answer