Stocks A and B have the following historical returns:YearStock A’s Returns, rAStock B’s Returns, rB2010(18.00%)(14.50%)201133.0021.80201215.0030.502013(0.50)(7.60)201427.0026.30 Calculate the average rate of return for each stock during the period 2010 through 2014.Assume that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would the realized rate of return on the portfolio have been each year? What would the average return on the portfolio have been during this period?Calculate the standard deviation of returns for each stock and for the portfolio.Calculate the coefficient of variation for each stock and for the portfolio.Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Explain thoroughly why.

The average return of the stock is the mean returns over the period. To determine the yearly return…

Answered: Calculate the average rate of return…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 18PROB

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Stocks A and B have the following historical returns:

Year	Stock A’s Returns, rA	Stock B’s Returns, rB
2010	(18.00%)	(14.50%)
2011	33.00	21.80
2012	15.00	30.50
2013	(0.50)	(7.60)
2014	27.00	26.30

Calculate the average rate of return for each stock during the period 2010 through 2014.
Assume that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would the realized rate of return on the portfolio have been each year? What would the average return on the portfolio have been during this period?
Calculate the standard deviation of returns for each stock and for the portfolio.
Calculate the coefficient of variation for each stock and for the portfolio.
Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Explain thoroughly why.

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