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Chapter 05
Risk and Return: Past and Prologue

1. The 1% VaR give be less than -30%. As percentile or probability of a lessen declines so does the magnitude of that return. Thus, a 1 percentile probability depart produce a little VaR than a 5 percentile probability.

2. The geometric return represents a compounding growth number and will unnaturally inflate the annual performance of the portfolio.

3. No. Since all items argon presented in token(a) figures, the input should also use nominal data.

4. Decrease. Typically, standard deviation exceeds return. Thus, a reduction of 4% in each will artificially decrease the return per social unit of risk. To return to the proper risk return relationship the portfolio will need to decrease the amount of risk free investments.

5. E(r) = [0.3 × 44%] + [0.4 × 14%] + [0.3 × (16%)] = 14%
(2 = [0.3 × (44 14)2] + [0.4 × (14 14)2] + [0.3 × (16 14)2] = 540
( = 23.24%
The mean is unchanged, exactly the standard deviation has increased.

6.
a. The holding period returns for the three scenarios atomic number 18:
Boom:(50 40 + 2)/40 = 0.30 = 30.00%
Normal:(43 40 + 1)/40 = 0.10 = 10.00%
Recession:(34 40 + 0.50)/40 = 0.1375 = 13.75%
E(HPR) = [(1/3) × 30%] + [(1/3) × 10%] + [(1/3) × (13.75%)] = 8.75%
(2(HPR) = [(1/3) × (30 8.75)2] + [(1/3) × (10 8.75)2] + [(1/3) × (13.75 8.75)2]
= 319.



79
( = [pic]= 17.88%

b. E(r) = (0.5 × 8.75%) + (0.5 × 4%) = 6.375%
( = 0.5 × 17.88% = 8.94%

7.
a. Time-weighted average returns are based on year-by-year rates of return.

| course of instruction |Return = [(capital gains + dividend)/price] |
|2007-2008 |(110 100 + 4)/100 = 14.00% |
|2008-2009 |(90 110 + 4)/110 = 14.55% |...If you motive to get a full essay, order it on our website: Orderessay



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