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REALIZED RATES OF RETURN Stocks A and B have the following historical returns: Year Stock A's Returns, r A Stock B's Returns, r B 2013 (18.00%) (14.50%) 2014 33.00 21.80 2015 15.00 30 5O 2016 (0.50) (7.60) 2017 27.00 26.30 a. Calculate the average rate of return for each stock during the period 2013 through 2017. b. 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? 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. Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why?

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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977
BuyFind

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781285867977

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Chapter
Section
Chapter 8, Problem 20P
Textbook Problem

REALIZED RATES OF RETURN Stocks A and B have the following historical returns:

Year Stock A's Returns, rA Stock B's Returns, rB
2013 (18.00%) (14.50%)
2014 33.00 21.80
2015 15.00 30 5O
2016 (0.50) (7.60)
2017 27.00 26.30
  1. a. Calculate the average rate of return for each stock during the period 2013 through 2017.
  2. b. 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?
  3. c. Calculate the standard deviation of returns for each stock and for the portfolio.
  4. d. Calculate the coefficient of variation for each stock and for the portfolio.
  5. e. Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why?

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Chapter 8 Solutions

Fundamentals of Financial Management (MindTap Course List)
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