a) CEMENCO Stock Return YEAR CEMENCO RETURN 2000 13.9% 2001 20.0% 2002 11.6% 2003 2.8% 2004 3.6% 2005 -16.3% 2006 47.3% 2007 -12.7% Find the Average Return and Risk (as measured by Standard Deviation) of CEMENCO...

70.2K

Verified Solution

Question

Accounting

a)           CEMENCO Stock Return
    YEAR                                                                                     CEMENCO RETURN
2000                                                                                                    13.9%
2001                                                                                                   20.0%
2002                                                                                                    11.6%
2003                                                                                                     2.8%
2004                                                                                                     3.6%
2005                                                                                                   -16.3%
2006                                                                                                     47.3%
2007                                                                                                   -12.7%
Find the Average Return and Risk (as measured by StandardDeviation) of CEMENCO since 2000.
b) You have a portfolio consisting of 20 percent CEMENCO stock(? = 0.81), 40 percent of Monrovia Breweries (Club Beer) stock ((?= 1.67). How much market risk does the portfolio have? How doesthis compare with the general market?
c) Data from the last eight decades for S & P 500 indexyield the following statistics: average excess return = 7.9%;Standard Deviation = 23.2%.
(i)To the extent that these averages approximated investorexpectations for the period, what must have been the averagecoefficient of risk aversion? Formula: E (r_m) –r_f = ? ?²_m
(II)If the coefficient of risk aversion were actually 3.5, whatrisk premium would have been consistent with the market’shistorical standard deviation?
d) A portfolio’s return is 12%, its standard deviation is 20%and the risk-free rate is 4%. Which of the following would make thegreatest increase in the portfolio’s Sharpe ratio?
An increase of 1% in expected return?
A decrease of 1% in the risk-free rate?
A decrease of 1% in its standard deviation?

Answer & Explanation Solved by verified expert

4.0 Ratings (527 Votes)

a YEAR CEMENCO RETURN CEMENCO Stock Return 2000 1390 2001 2000 2002 1160 2003 280 2004 360 2005 1630 2006 4730 2007 1270 Average Return using excel function Average 877 Average See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

a) CEMENCO Stock Return YEAR CEMENCO RETURN2000 13.9%2001 20.0%2002 11.6%2003 2.8%2004 3.6%2005 -16.3%2006 47.3%2007 -12.7%Find the Average Return and Risk (as measured by StandardDeviation) of CEMENCO since 2000.b) You have a portfolio consisting of 20 percent CEMENCO stock(? = 0.81), 40 percent of Monrovia Breweries (Club Beer) stock ((?= 1.67). How much market risk does the portfolio have? How doesthis compare with the general market?c) Data from the last eight decades for S & P 500 indexyield the following statistics: average excess return = 7.9%;Standard Deviation = 23.2%.(i)To the extent that these averages approximated investorexpectations for the period, what must have been the averagecoefficient of risk aversion? Formula: E (rm) –rf = ? ?2m(II)If the coefficient of risk aversion were actually 3.5, whatrisk premium would have been consistent with the market’shistorical standard deviation?d) A portfolio’s return is 12%, its standard deviation is 20%and the risk-free rate is 4%. Which of the following would make thegreatest increase in the portfolio’s Sharpe ratio?An increase of 1% in expected return?A decrease of 1% in the risk-free rate?A decrease of 1% in its standard deviation?