Stocks A and B have the following historical returns: Year TA 2006 -18.00% -14.50% 2007 33.00 21.80 2008 15.00 30.50 2009 -0.50 -7.60 2010 27.00 26.30 a. Calculate the average rate of return for each stock during the 5-year period. b. Assume that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate of return on the portfolio in each year? What would have been the average return on the portfolio during this period? c. Calculate the standard deviation of returns for each stock and for the portfolio. d. Calculate the coefficient of variation for each stock and for the portfolio. e. If you are a risk-averse investor then, assuming these are your only choices, would you prefer to hold Stock A, Stock B, or the portfolio? Why?
Stocks A and B have the following historical returns: Year TA 2006 -18.00% -14.50% 2007 33.00 21.80 2008 15.00 30.50 2009 -0.50 -7.60 2010 27.00 26.30 a. Calculate the average rate of return for each stock during the 5-year period. b. Assume that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate of return on the portfolio in each year? What would have been the average return on the portfolio during this period? c. Calculate the standard deviation of returns for each stock and for the portfolio. d. Calculate the coefficient of variation for each stock and for the portfolio. e. If you are a risk-averse investor then, assuming these are your only choices, would you prefer to hold Stock A, Stock B, or the portfolio? Why?
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 18PROB
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Transcribed Image Text:Stocks A and B have the following historical returns:
Year
TA
2006
-18.00%
-14.50%
2007
33.00
21.80
2008
15.00
30.50
2009
-0.50
-7.60
2010
27.00
26.30
a. Calculate the average rate of return for each stock during the 5-year period.
b. Assume that someone held a portfolio consisting of 50% of Stock A and 50% of
Stock B. What would have been the realized rate of return on the portfolio in
each year? What would have been the average return on the portfolio during this
period?
c. Calculate the standard deviation of returns for each stock and for the portfolio.
d. Calculate the coefficient of variation for each stock and for the portfolio.
e. If you are a risk-averse investor then, assuming these are your only choices,
would you prefer to hold Stock A, Stock B, or the portfolio? Why?
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