Using historical risk premiums from Table 5.5 over the 1927-2021 period as your guide, what would be your estimate of the expected annual HPR on the Big/Value portfolio if the current risk-free interest rate is 2.40%? \tablell, Market Index, Big/growth Big/ value, Small/growth.Small/value], [A.1927-2021.....1 [Mean excess return (annualized), 8.86, 8.79, 12.02, 9.60, 15.54], [Standard deviation (annualized), 18.52, 18.35, 24 83, 25.97, 28.23] [Sharpe ratio,048, 0.48,0.48, 0.37, 0.55], Iower partial SD (annualzed ) 19.62, 18.85, 23.61, 25.86, 26.33], [Skew, 0.17, 0.11, 1:50, 0.59, 2.06] [Kurtosis, 7.61, 5.47, 17.58,7.10, 21.60], [VaR (1%) actual ( monthly) returns.-13.58,14.40, 1993, 20.10,20.68], [VaR(1) normal distribution. -11.75,-11.64,15.75-1669-17.78], (% of monthly retums more than 3,... [SD below mean0.88% 0.79% 0.88%,0.79% 0.62% A. 1927-2021Mean excess return (annualized)Standard deviation (annualized)Sharpe ratioLower partial SD (annualized)SkewKurtosisVaR (1%) actual (monthly) returnsVaR (1%) normal distribution% of monthly returns more than 3SD below meanExpected shortfall (monthly)B. 1952-2021Mean excess return (annualized)Standard deviation (annualized)Sharpe ratioLower partial SD (annualized)SkewKurtosisVaR (1%) actual (monthly) returnsVaR (1%) normal distribution% of monthly returns more than 3SD below meanExpected shortfall (monthly)Market Index Big/growth8.8618.520.4819.620.177.61-13.58-11.750.88%-19.608.4014.950.5616.17-0.521.90-10.89-9.390.71%-14.478.7918.350.4818.85-0.115.47-14.40-11.640.79%-19.868.4715.500.5515.78-0.351.75-10.84-9.750.60%-13.96Big/value Small/growth Small/value12.0224.830.4823.611.5017.58-19.93-15.750.88%-24.6110.5917.080.6217.69-0.463.03-12.48-10.660.83%-18.089.6025.970.3725.860.597.10-20.10-16.690.79%-24.648.2122.390.3723.72-0.332.17-17.22-14.400.95%-22.7615.5428.230.5526.332.0621.60-20.68-17.780.62%26.0013.5119.020.7120.23-0.453.83-15.24-11.751.07%-20.27

Excess returns of Big value (1927-2021): 12.02%Risk free rate: 2.40%

Answered: Using historical risk premiums from…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 17P

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Using historical risk premiums from Table 5.5 over the 1927-2021 period as your guide, what would be your estimate of the expected annual HPR on the Big/Value portfolio if the current risk-free interest rate is 2.40%? \tablell, Market Index, Big/growth Big/ value, Small/growth.Small/value], [A.1927-2021.....1 [Mean excess return (annualized), 8.86, 8.79, 12.02, 9.60, 15.54], [Standard deviation (annualized), 18.52, 18.35, 24 83, 25.97, 28.23] [Sharpe ratio,048, 0.48,0.48, 0.37, 0.55], Iower partial SD (annualzed ) 19.62, 18.85, 23.61, 25.86, 26.33], [Skew, 0.17, 0.11, 1:50, 0.59, 2.06] [Kurtosis, 7.61, 5.47, 17.58,7.10, 21.60], [VaR (1%) actual ( monthly) returns.-13.58,14.40, 1993, 20.10,20.68], [VaR(1) normal distribution. -11.75,-11.64,15.75-1669-17.78], (% of monthly retums more than 3,... [SD below mean 0.88% 0.79% 0.88%,0.79% 0.62%

A. 1927-2021
Mean excess return (annualized)
Standard deviation (annualized)
Sharpe ratio
Lower partial SD (annualized)
Skew
Kurtosis
VaR (1%) actual (monthly) returns
VaR (1%) normal distribution
% of monthly returns more than 3
SD below mean
Expected shortfall (monthly)
B. 1952-2021
Mean excess return (annualized)
Standard deviation (annualized)
Sharpe ratio
Lower partial SD (annualized)
Skew
Kurtosis
VaR (1%) actual (monthly) returns
VaR (1%) normal distribution
% of monthly returns more than 3
SD below mean
Expected shortfall (monthly)
Market Index Big/growth
8.86
18.52
0.48
19.62
0.17
7.61
-13.58
-11.75
0.88%
-19.60
8.40
14.95
0.56
16.17
-0.52
1.90
-10.89
-9.39
0.71%
-14.47
8.79
18.35
0.48
18.85
-0.11
5.47
-14.40
-11.64
0.79%
-19.86
8.47
15.50
0.55
15.78
-0.35
1.75
-10.84
-9.75
0.60%
-13.96
Big/value Small/growth Small/value
12.02
24.83
0.48
23.61
1.50
17.58
-19.93
-15.75
0.88%
-24.61
10.59
17.08
0.62
17.69
-0.46
3.03
-12.48
-10.66
0.83%
-18.08
9.60
25.97
0.37
25.86
0.59
7.10
-20.10
-16.69
0.79%
-24.64
8.21
22.39
0.37
23.72
-0.33
2.17
-17.22
-14.40
0.95%
-22.76
15.54
28.23
0.55
26.33
2.06
21.60
-20.68
-17.78
0.62%
26.00
13.51
19.02
0.71
20.23
-0.45
3.83
-15.24
-11.75
1.07%
-20.27

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

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