Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Table attached shows the historical returns for Companies A, B and C
- 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%?
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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