You have the following information about means and standard deviations of several investment options: Investment Mean...
You have the following information about means and standard deviations of several investment options:
| Investment | Mean | StDev |
| A | 13 | 19 |
| B | 12 | 18 |
| C | 8 | 20 |
Your client wants to minimize the chance of having a less than 0% return. What is the safety first ratio of the optimal investment for the client?
Enter answer accurate to three decimal places.
Homework Answers
Threshold mean = 0
Safety First (SF) ratio = (Expected return – Threshold return)/Standard deviation
For A, SF ratio = (13 – 0)/19 = 0.684
For B, SF ratio = (12 – 0)/18 = 0.667
For C, SF ratio = (8 – 0)/20 = 0.40
Portfolio A has the highest SF ratio and therefore should be selected.
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3-self contained/stand-alone
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1. Basic concepts - Risk and return Professor Isadore (Izzy) Invest-a-Lot retired two years ago from Exceptional College, a small liberal arts college in North Carolina after teaching corporate finance and investment theory for 35 years. Yesterday, Izzy appear on EC LIVE, a television show produced for the students,...
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