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bnott23Finance Homework Introduction to Finance
Week 7 Melicher / Norton
14th Edition / 2011
Chapter 12: P1, P2, P3, and P4
P1. From the information below, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset.
ASSET ANNUAL RETURNS
A) 5%, 10%, 15%, 4%
B) -6%, 20%, 2%, -5%, 10%
C) 12%, 15%, 17%
D) 10%, -10%, 20%, -15%, 8%, -7%
P2. Base upon your answers to question 1, which asset appears riskiest based on standard deviation? Based on coefficient of variation?
P3. Recalling the definitions of risk premiums from Chapter 8 and using the Treasury bill return in Table 12.4 as an approximation to the nominal risk-free rate, what is the risk premium from investing in each of the other asset classes listed in Table 12.4?
Table 12.4 - Historical Returns and Standard Deviation of Returns from Different Assets, 1928-2008:
Annual Average Return - Treasury Bills (3.8%), Treasury Bonds (5.4%), Stocks (11.1%), Inflation Rate (3.2%)
Standard Deviation - Treasury Bills (3.0%), Treasury Bonds (7.6%), Stocks (20.4%), Inflation Rate (4.0%)
P4. What is the real, or after-inflation, return from each of the asset classes listed in Table 12.4?
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