Portfolio analysis You have been given the expected return data shown in the first table on three assets—F, G, and H—over the period 2016–2019.
Expected return
Year Asset F Asset G Asset H
2016 16% 17% 14%
2017 17 16 15
2018 18 15 16
2019 19 14 17
Alternative Investment
1 100% of asset F
2 50% of asset F and 50% of asset G
3 50% of asset F and 50% of asset H
Asset
Expected
return, r
Risk (standard
deviation), sr
V 8% 5%
W 13 10
Using these assets, you have isolated the three investment alternatives shown in the following table.
a. Calculate the expected return over the 4-year period for each of the three alternatives.
b. Calculate the standard deviation of returns over the 4-year period for each of the three alternatives.
c. Use your findings in parts a and b to calculate the coefficient of variation for each of the three alternatives.
d. On the basis of your findings, which of the three investment alternatives do you recommend? Why?