Question

Let two shares A and B, which in the last six weeks show the returns shown in the table below.

	1st week	2nd week	3rd week	4th week	5th week	6th week
Share A	0.07	0.10	-0.04	0.05	-0.01	-0.05
Share B	0.11	0.01	-0.08	0.12	0.08	0.14

A) Calculate the average return of shares A and B for the period of 6 weeks, using the arithmetic mean.
B) Assuming that there is a portfolio that includes the 2 shares in equal percentages (50% - 50%), what is the average return of the portfolio?
C) Calculate the risk (standard deviation) of shares A and B. Which share do you consider more dangerous based on the criterion of the coefficient of variation (CV)?

D) Participate in a retirement plan which gives you the following options for how to collect your pension.
1st choice: Annual installments of 11,000 euros for 20 years.
2nd option: Payment of 500,000 euros at the end of the investment horizon, ie in 0 years.
Knowing that the nominal interest rate is equal to 7%, evaluate the two investments.

Answer 1

			1 st week	2nd week	3	4	5	6
		A	0.07	0.1	-0.04	0.05	-0.01	-0.05
		B	0.11	0.01	-0.08	0.12	0.08	0.14
1		Average return of = sum of all six weeks / 6
		A =	0.02
		B =	0.06
2		Assuming that there is a portfolio that includes the 2 shares in equal percentages (50% - 50%)
		average return of the portfolio = (A+B)/2
		Avereage return =	0.04
3		More dangerous is B
		Because it high was 0.14 & low was -0.08 which is drastically movement from average
4		1 st choice=
		Annual installment = 11000
		Time = 20 years
		Interest rate = 7%
		Total installment amount = 11000*20	220000
		Interest amount = 220000*7%*10	154000
		Total cashflow			374000
		2 nd option
		Total cashflow =			500000
		So here option 1 is better