KIC000017 - Annualization Variance is proportional to time,...

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Unformatted text preview: Annualization Variance is proportional to time, t. What is the annual variance of ABIT returns? cr~""""1 = cr;"k!)' x 52 = .001264x52 =.06573 Standard deviation is proportional to the square root of t. What is the annual standard deviation of ABIT returns? = .03555x 7.2111 = .2564 or 25.64% Dollar- Weighted Returns Consider two portfolio managers (A and B) who have identical investment styles and skill. Assume over a two-period investment horizon they produce exactly the same capital gains with the funds entrusted to them: 25% in the first period and 5% in the second period. Further, suppose each manager receives from his respective investor $500,000 to invest. The difference is that Manager A receives all of these funds immediately, whereas Manager B's investor commits only $250,000 initially and the remaining $250,000 at the end of the first period. Dollar- Weighted Returns The immediate effect of this discrepancy can be seen by calculating the terminal (period 2) value of each portfolio: Portfolio A:...
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This note was uploaded on 09/07/2011 for the course FINANCE 320 taught by Professor Sapp during the Fall '10 term at Iowa State.

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KIC000017 - Annualization Variance is proportional to time,...

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