Consider the following returns for two investments, A and B, over the past four
ID: 3160081 • Letter: C
Question
Consider the following returns for two investments, A and B, over the past four years:
Investment 1: 3% 11% –6% 11%
Investment 2: 8% 19% –10% 13% a-1.
a1. Calculate the mean for each investment. (Round your answers to 2 decimal places.)
Mean: Investment 1 percent
Investment 2 percent
a-2. Which investment provides the higher return?
Investment 1
Investment 2
b-1. Calculate the standard deviation for each investment. (Round your answers to 2 decimal places.)
Standard Deviation Investment 1 Investment 2 b-2. Which investment provides less risk?
Investment 1
Investment 2
c-1. Given a risk-free rate of 1.2%, calculate the Sharpe ratio for each investment. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Sharpe Ratio Investment 1 Investment 2
c-2. Which investment has performed better? Investment 1 Investment 2
Explanation / Answer
Consider the following returns for two investments, A and B, over the past four years:
Investment 1: 3% 11% –6% 11%
Investment 2: 8% 19% –10% 13% a-1.
a1. Calculate the mean for each investment. (Round your answers to 2 decimal places.)
Mean: Investment 1 4.75 percent
Investment 2 7.5 percent
Descriptive statistics
A
B
count
4
4
mean
4.7500
7.5000
sample standard deviation
8.0984
12.5033
sample variance
65.5833
156.3333
a-2. Which investment provides the higher return?
Investment 1
Investment 2
b-1. Calculate the standard deviation for each investment. (Round your answers to 2 decimal places.)
Standard Deviation Investment 1 Investment 2 b-2. Which investment provides less risk?
Investment 1 8.0984
Investment 2 12.5033
c-1. Given a risk-free rate of 1.2%, calculate the Sharpe ratio for each investment. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Sharpe Ratio Investment 1
(4.75-1.2)/8.0984 = 0.438358
Investment 2
=(7.5-1.2)/12.5033 = 0.503867
c-2. Which investment has performed better?
Investment 1
Investment 2
Descriptive statistics
A
B
count
4
4
mean
4.7500
7.5000
sample standard deviation
8.0984
12.5033
sample variance
65.5833
156.3333