An investor recorded the following annual returns of one of his investments. You are required to calculate and comment on; 1. Mean return. 2. Variance and standard deviation of the return. 3. Geometric return. Year 2016 2017 2018 2019 2020 Return 15% 17% 19% 10% -5%
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
An investor recorded the following annual returns of one of his investments. You are required to calculate and comment on;
1. Mean return.
2. Variance and standard deviation of the return.
3. Geometric return.
|
Year |
2016 |
2017 |
2018 |
2019 |
2020 |
|
Return |
15% |
17% |
19% |
10% |
-5% |
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