Question

you have been given the expected return data shown in the first table on three

assetslong dash—​F,

​G, and

H long dash—over

the period​ 2016-2019:

	Expected Return
Year	Asset F		Asset G		Asset H
2016	16​%		17​%		14​%
2017	17​%		16​%		15​%
2018	18​%		15​%		16​%
2019	19​%		14​%		17​%

Using these​ assets, you have isolated the three investment alternatives shown in the following​ table

Alternative		Investment
1		​100% of asset F
2		​50% of asset F and​ 50% of asset G
3		​50% of asset F and​ 50% of asset H

Calculate the expected return over the​ 4-year period for each of the three alternatives. ?

Answer 1

	Alternative 1
	​100% of asset F
	Year	Asset F
1	2016	16
2	2017	17
3	2018	18
4	2019	19
		=SUM(C24:C27)
		70
	Average expected Return=			Total Expected Return/ No. of Years
				17.50
	Alternative 2
	Year	Asset G
	2016	17
	2017	16
	2018	15
	2019	14
		=SUM(C37:C40)
		62
	Average expected Return=			Total Expected Return/ No. of Years
				15.50
	Expected Return in Aternative 2
			= Avg. Expected Return of F* weights of F + Avg. Expected Return of G* weights of G
			16.50
	Alternative 3
	Year	Asset H
	2016	14
	2017	15
	2018	16
	2019	17
		=SUM(C53:C56)
		62
	Average expected Return=			Total Expected Return/ No. of Years
				15.50
	Expected Return in Aternative 3
			= Avg. Expected Return of H* weights of H + Avg. Expected Return of G* weights of G
			15.50