Question

In: Finance

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

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.

Solutions

Expert Solution

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

jeff jeffy answered 1 year ago
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