Your client is interested in investing in the precious metals as they have historically been considered...

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Your client is interested in investing in the precious metals as they have historically been considered as safe-haven/hedge against equity market volatility. However, he has been warned off by his financial planner. You are asked to compare the historical performance of the precious metals and equity asset class using suitable portfolio performance measures. a) Evaluate the performance of the precious metals using appropriate portfolio performance measures and explain your results. Discuss three problems with the use of the Sharpe ratio to analyse the performance of a stock. b) Financial market commentators often argue that it is unwise to invest in precious metals, as they historically have lower average returns and higher risk compared to equities. In light of this evidence and the results reported in Part a, discuss whether there is any justification for an investor with mean-variance utility preferences to invest in precious metals as opposed to equities. Your client is interested in investing in the precious metals as they have historically been considered as safe-haven/hedge against equity market volatility. However, he has been warned off by his financial planner. You are asked to compare the historical performance of the precious metals and equity asset class using suitable portfolio performance measures. a) Evaluate the performance of the precious metals using appropriate portfolio performance measures and explain your results. Discuss three problems with the use of the Sharpe ratio to analyse the performance of a stock. b) Financial market commentators often argue that it is unwise to invest in precious metals, as they historically have lower average returns and higher risk compared to equities. In light of this evidence and the results reported in Part a, discuss whether there is any justification for an investor with mean-variance utility preferences to invest in precious metals as opposed to equities.

Answer rating: 100% (QA)

a To evaluate the performance of precious metals we can use several portfolio performance measures such as the Sharpe ratio the Treynor ratio and the Jensens alpha Lets focus on the Sharpe ratio for t... View the full answer