Consider the following returns for two investments, A and B, over the past four

Question

Consider the following returns for two investments, A and B, over the past four years:

Calculate the mean for each investment. (Round your answers to 2 decimal places.)

Which investment provides the higher return?

Calculate the standard deviation for each investment. (Round your answers to 2 decimal places.)

Which investment provides less risk?

Given a risk-free rate of 1.3%, calculate the Sharpe ratio for each investment. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Investment 1: 5% 7% –7% 11%   Investment 2: 7% 15% –18% 19%

Explanation / Answer

4% is the mean of investment 1. (Take the average)

6.75% is the mean of investment 2.

Investment 2 provides the higher return.

c)

are the standard deviations.

d) More the standard deviation, more risky is the investment.

100 105 112.35 104.4855 115.9789 100 107 123.05 100.901 120.0722

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