Stocks A and B have the following historical returns: Year rA rB 2015 -18% 56% 2016 44% 8% 2017 -22% -4% 2018 22% 24% 2019 34% -24% A. Calculate the average rate of return for each stock during the 5-year perioc that someone held a portfolio consisting of 50% of Stock A and 50% of Sto What would have been the realized rate of return on the portfolio in each y would have been the average return on the portfolio for the 5-year period? B. Now calculate the standard deviation of returns for each stock and for the C. Looking at the annual returns data on the two stocks, would you guess tha correlation coefficient between returns on the two stocks is closer to 0.8 c D. If you added more stocks at random to the portfolio, which of the following most accurate statement of what would happen to o,? I. O, would remain constant. II. O, would decline to somewhere in the vicinity of 20%. II. O, would decline to zero if enough stocks were included.

Stocks A and B have the following historical returns: Year rA rB 2015 -18% 56% 2016 44% 8% 2017 -22% -4% 2018 22% 24% 2019 34% -24% A. Calculate the average rate of return for each stock during the 5-year perioc that someone held a portfolio consisting of 50% of Stock A and 50% of Sto What would have been the realized rate of return on the portfolio in each y would have been the average return on the portfolio for the 5-year period? B. Now calculate the standard deviation of returns for each stock and for the C. Looking at the annual returns data on the two stocks, would you guess tha correlation coefficient between returns on the two stocks is closer to 0.8 c D. If you added more stocks at random to the portfolio, which of the following most accurate statement of what would happen to o,? I. O, would remain constant. II. O, would decline to somewhere in the vicinity of 20%. II. O, would decline to zero if enough stocks were included.

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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