Consider the performance of two securities, J and K over the five year period from 2000 to 2004. The annual return earned on each one of them is as provided in the table below: Year J K % % 2000 -30.0 6.4 2001 55.9 -21.1 2002 15.7 -10.0 2003 75.9 35.0 2004 5.7 15.6 Required: Compute the following: (i) The Arithmetic Mean returns of both securities over the 5-year holding period and the Geometric Mean return of both securities over the 5-year holding period. (ii) Assuming your organization had K100 million to invest on 01st January, 2000. If this was invested equally in the two securities, what terminal value would be accumulated after 5 years with annual compounding? (ii)What level of volatility would your investments be exposed to over the holding period for each security? and Evaluate the performance of the securities individually. With hindsight, which security would you have advised management to invest in if it had to choose only one?
Consider the performance of two securities, J and K over the five year period from 2000 to 2004. The annual return earned on each one of them is as provided in the table below:
|
Year |
J |
K |
|
|
% |
% |
|
2000 |
-30.0 |
6.4 |
|
2001 |
55.9 |
-21.1 |
|
2002 |
15.7 |
-10.0 |
|
2003 |
75.9 |
35.0 |
|
2004 |
5.7 |
15.6 |
|
|
|
|
Required:
Compute the following:
(i) The Arithmetic Mean returns of both securities over the 5-year holding period and the Geometric Mean return of both securities over the 5-year holding period.
(ii) Assuming your organization had K100 million to invest on 01st January, 2000. If this was invested equally in the two securities, what terminal value would be accumulated after 5 years with annual compounding?
(ii)What level of volatility would your investments be exposed to over the holding period for each security? and Evaluate the performance of the securities individually. With hindsight, which security would you have advised management to invest in if it had to choose only one?
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