Probability Distribution

Two portfolios, A & B, are currently being considered by a financial planner. The probability distributions of expected return for these assets are shown in the following table:

Asset A

Asset B

Assets

Return %

Amount invested

Return %

Pr

A

14

$2500

8

0.40

B

8

$3500

9

0.15

C

0

$1500

-2

0.20

D

-4

$2700

7

0.10

E

-7

$3400

9

0.25

Required

1. Calculate the expected return of asset A & B. Which asset has the highest return?

2. Calculate the variance and standard deviation for each of the assets return.

Which one appears to have highest risk?

3. Calculate the coefficient of variation and Sharpe ratio for each asset.

4. If risk free risk is 2.5 % calculate the sharpe ratio.

Put all the results calculated above on a table .Which one will you choose and why?

NOTES to the question

How to calculate Sharpe ratio?

Sharpe ratio measures the return relative to the risk taken. It shows the return reaped above the risk free rate.

Riask free rate is the reruen on government bond which carries little or no risk apart from inflation risk

Sharpe Ratio = [E(x) Risk free rate ] / standard deviation ] SR = [ E(x) RF ] /

This is abetter measure than return only or even CV

QUESTION Probability Distribution Two portfolios, A & B are currently being considered by a financial planner. The probability distributions of expected return for these are the following Asset Assets Return Asset A Amount imesed Reum B 14 8 0 00 S3500 SIS 20 19 030 10 D SLO 7 . Required 1. Calculate the expected return of asset A & B. Which has the highest return 2. Calculate the variance and standard deviation for each of these Which one appears to have highest rik? 3. Calculate the coefficient of variation and Sharpe ratio for eacht 4. If risk free risk is 2.5 % calculate the shape ratio Put all the results calculated above on a table Which one will you choose and why? NOTES to the question How to calculate Sharpe ratio Sharpe ratio measures the return relative to the risk taken. It shows the tem raped above the risk free rate Risk force trate is the renuen on government head which caries like ce so tisk part Sharpe Ratio - [Ex)Risk free rate standard deviation] SR) - RFI This is abetter measure than retum only or even CV QUESTION Probability Distribution Two portfolios, A & B are currently being considered by a financial planner. The probability distributions of expected return for these are the following Asset Assets Return Asset A Amount imesed Reum B 14 8 0 00 S3500 SIS 20 19 030 10 D SLO 7 . Required 1. Calculate the expected return of asset A & B. Which has the highest return 2. Calculate the variance and standard deviation for each of these Which one appears to have highest rik? 3. Calculate the coefficient of variation and Sharpe ratio for eacht 4. If risk free risk is 2.5 % calculate the shape ratio Put all the results calculated above on a table Which one will you choose and why? NOTES to the question How to calculate Sharpe ratio Sharpe ratio measures the return relative to the risk taken. It shows the tem raped above the risk free rate Risk force trate is the renuen on government head which caries like ce so tisk part Sharpe Ratio - [Ex)Risk free rate standard deviation] SR) - RFI This is abetter measure than retum only or even CV