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Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Company A 30% 7% 18% -22% -14% 10% 26% -10% -3% 38% 27.0% 6.3% 16.2% -19.8% -12.6% 9.0% 23.4% -9.0% -2.7% 34.2% Company B 26% 15% -14% -15% 2% -18% 42% 30% -32% 28% 23.4% 13.5% -12.6% -13.5% 1.8% -16.2% 37.8% 27.0% -28.8% 25.2% Company C 47% -54% 15% 7% -28% 40% 17% -23% -4% 75% 42.3% -48.6% 13.5% 6.3% -25.2% 36.0% 15.3% -20.7% -3.6% 67.5%

Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Company A 30% 7% 18% -22% -14% 10% 26% -10% -3% 38% 27.0% 6.3% 16.2% -19.8% -12.6% 9.0% 23.4% -9.0% -2.7% 34.2% Company B 26% 15% -14% -15% 2% -18% 42% 30% -32% 28% 23.4% 13.5% -12.6% -13.5% 1.8% -16.2% 37.8% 27.0% -28.8% 25.2% Company C 47% -54% 15% 7% -28% 40% 17% -23% -4% 75% 42.3% -48.6% 13.5% 6.3% -25.2% 36.0% 15.3% -20.7% -3.6% 67.5%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Table attached shows the historical returns for Companies A, B and C

  1. If one investor has a portfolio consisting of 70% Company A and 30% Company B, what are the average portfolio return and standard deviation? What is Sharpe ratio if the risk-free rate is 3.5%?

2. If another investor has a portfolio consisting of 1/3 Company A, 1/3 Company B and 1/3 Company C, what are the average portfolio return and standard deviation? What is Sharpe ratio if the risk-free rate is 3.5%?

 

The table presents the annual percentage changes in performance for three companies—A, B, and C—over a 20-year period. Each cell contains the percentage change for the respective company in that year. **Detailed Data Summary:** - **Yearly Performance:** - For each year (1 to 20), the table lists the percentage change as a separate entry for Company A, Company B, and Company C. - **Company A:** - Year 1 experienced a 30% increase. - There are fluctuations, with notable declines in years 4 (-22%) and 5 (-14%). - The highest positive change occurred in year 10 with a 38% increase. - The lowest was in year 14, with a decrease of 19.8%. - **Company B:** - Started with a 26% increase in year 1. - Notable fluctuations include year 3 (-14%) and year 6 (-18%). - The largest increase was in year 17, with a 37.8% rise. - The largest decrease was in year 9 with a decline of 32%. - **Company C:** - Started off with a high of 47% increase in year 1, then fell drastically in year 2 (-54%). - Experienced a high increase in year 10 (75%) and a significant drop in year 13 (-48.6%). - Ended with a 67.5% increase in year 20. The table offers a clear, year-by-year view of the changes, helping one understand the volatility and growth trends within each company over the two decades.
Transcribed Image Text:The table presents the annual percentage changes in performance for three companies—A, B, and C—over a 20-year period. Each cell contains the percentage change for the respective company in that year. **Detailed Data Summary:** - **Yearly Performance:** - For each year (1 to 20), the table lists the percentage change as a separate entry for Company A, Company B, and Company C. - **Company A:** - Year 1 experienced a 30% increase. - There are fluctuations, with notable declines in years 4 (-22%) and 5 (-14%). - The highest positive change occurred in year 10 with a 38% increase. - The lowest was in year 14, with a decrease of 19.8%. - **Company B:** - Started with a 26% increase in year 1. - Notable fluctuations include year 3 (-14%) and year 6 (-18%). - The largest increase was in year 17, with a 37.8% rise. - The largest decrease was in year 9 with a decline of 32%. - **Company C:** - Started off with a high of 47% increase in year 1, then fell drastically in year 2 (-54%). - Experienced a high increase in year 10 (75%) and a significant drop in year 13 (-48.6%). - Ended with a 67.5% increase in year 20. The table offers a clear, year-by-year view of the changes, helping one understand the volatility and growth trends within each company over the two decades.
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