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Unformatted text preview: (revised) The Hong Kong Polytechnic University Department of Applied Mathematics Investment Science AMA532 Semester 2, 2009/2010 Assignment One Hand in solutions of questions 1, 2, 3, 4 and 5 by 6:30pm, 9 February. This is worth 2.5% towards your final course mark. Late submissions may not be marked, and if marked will receive reduced or zero credit. In the cases where applicable, present your results up to 4 decimal points. 1. During the past 5 years, you owned two stocks that had the following annual rates of return: Year Stock T Stock B 1 0.19 0.08 2 0.08 0.03 3- . 12- . 09 4- . 03 0.02 5 0.15 0.04 a. Compute the arithmetic mean annual rate of return for each stock. Which stock is most desirable by this measure ? b. Compute the standard deviation of the annual rate of return for each stock. By this measure, which is the preferable stock ? c. Assume that the risk free interest rate r f = 2%. Compute the coefficient of variation for each stock (or Shape ratio). By this relative measure of risk, which is preferable ?for each stock (or Shape ratio)....
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