Transcribed Image Text
a) CEMENCO Stock Return YEAR CEMENCO RETURN2000 13.9%2001 20.0%2002 11.6%2003 2.8%2004 3.6%2005 -16.3%2006 47.3%2007 -12.7%Find the Average Return and Risk (as measured by StandardDeviation) of CEMENCO since 2000.b) You have a portfolio consisting of 20 percent CEMENCO stock(? = 0.81), 40 percent of Monrovia Breweries (Club Beer) stock ((?= 1.67). How much market risk does the portfolio have? How doesthis compare with the general market?c) Data from the last eight decades for S & P 500 indexyield the following statistics: average excess return = 7.9%;Standard Deviation = 23.2%.(i)To the extent that these averages approximated investorexpectations for the period, what must have been the averagecoefficient of risk aversion? Formula: E (rm) –rf = ? ?2m(II)If the coefficient of risk aversion were actually 3.5, whatrisk premium would have been consistent with the market’shistorical standard deviation?d) A portfolio’s return is 12%, its standard deviation is 20%and the risk-free rate is 4%. Which of the following would make thegreatest increase in the portfolio’s Sharpe ratio?An increase of 1% in expected return?A decrease of 1% in the risk-free rate?A decrease of 1% in its standard deviation?