4.3 problem set

Introduction

In this activity, youll apply risk and return concepts to real-world data. Youll calculate expected returns, variances, and standard deviations for single assets and portfolios. By doing this, youll see how numbers translate into investment decisions.

You will work with a fictional portfolio dataset which includes data for 24 months for 5 different securities. Use the information in both sheets of the Excel document included in this activity to complete your calculations.

Your textbook reading for this week, and the exercises in Activity 4.2 include all of the formulas and information you need to complete this activity.

You can also refer to Appendix E: Using Excel to Solve Financial Exercises in your textbook for additional guidance.

Activity Instructions

1. Download the .
2. Use Excel or a financial calculator to compute:

• Expected return of an individual security.
• Variance and standard deviation of returns.
• Portfolio expected return and risk (weighted averages).

1. Summarize your findings explaining what the results mean for investors.
2. Also describe
3. Any changes you would recommend to a risk-averse investor
4. Any changes you would recommend to an investor open to a higher level of risk

At the end of your submission, include a brief Design Statement explaining the process and tools you used to develop your work. Your statement should be about a paragraph or so, in your own words (rather than formally written), and unique to this assignment. Why are we asking for this? Find out more about .

Tips for Success

• Double-check your formulas (=STDEV(), =VAR(), weighted averages).
• Label each cell and keep your spreadsheet organized.
• Focus on interpreting results. What do your calculations tell us about real investments?

Writing and Submission Requirements

• Submit your completed Excel file with formulas visible.
• Include the following:
• One paragraph summarizing your interpretation of and insights about the data.
• One paragraph summarizing recommendations to a risk-averse investor.
• One paragraph summarizing recommendations to an investor open to some risk.
• A short interpretation (about one paragraph) summarizing your insights.
• Use APA format for citations.
• Refer to the for additional grading criteria
• Include your Design Statement

Weekly Learning Goal(s):

1. Analyze the relationship between risk and return.
2. Evaluate investment opportunities using risk-return analysis.
3. Assess the impact of diversification on portfolio risk.