You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching, Stock A and Stock B, have the following historical returns: Year FA 2015 -22.00% -4.00% 2016 34.00 17.00 2017 29.00 -15.00 2018 -2.00 46.00 2019 30.00 25.00 a. Calculate the average rate of return for each stock during the S-year period. Do not round intermediate calculations. Round your answers to bvo decimal places. Stock A: 13.80 % Stock B: 13.80 % b. Suppose you had 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? Do not round intermediate calculations. Round your answers to two decimal places. Negative values, if any, should be indicated by a minus sign. Year Portfolio 2015 13 % 2016 25.50 % 2017 7 % 2018 22 % 2019 27.50 % Average return 13.80 % c. Calulate the standard deviation of returns for each stock and for the portfolio. Do not round intermediate calculations. Round your answers to two decimal places. FA Portfolio Std. Dev. d. Suppose you are a risk-averse investor. Assuming Stocks A and B are your only choices, would you prefer to hold Stock A, Stock 8, or the portfolio? Why? A risk-averse investor should choose -Select- v, since it offers -Select- expected return with -Select- v risk.
You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching, Stock A and Stock B, have the following historical returns: Year FA 2015 -22.00% -4.00% 2016 34.00 17.00 2017 29.00 -15.00 2018 -2.00 46.00 2019 30.00 25.00 a. Calculate the average rate of return for each stock during the S-year period. Do not round intermediate calculations. Round your answers to bvo decimal places. Stock A: 13.80 % Stock B: 13.80 % b. Suppose you had 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? Do not round intermediate calculations. Round your answers to two decimal places. Negative values, if any, should be indicated by a minus sign. Year Portfolio 2015 13 % 2016 25.50 % 2017 7 % 2018 22 % 2019 27.50 % Average return 13.80 % c. Calulate the standard deviation of returns for each stock and for the portfolio. Do not round intermediate calculations. Round your answers to two decimal places. FA Portfolio Std. Dev. d. Suppose you are a risk-averse investor. Assuming Stocks A and B are your only choices, would you prefer to hold Stock A, Stock 8, or the portfolio? Why? A risk-averse investor should choose -Select- v, since it offers -Select- expected return with -Select- v risk.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter2: Risk And Return: Part I
Section: Chapter Questions
Problem 13P
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Transcribed Image Text:You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching, Stock A and Stock B, have the following historical returns:
Year
FA
2015
-22.00%
-4.00%
2016
34.00
17.00
2017
29.00
-15.00
2018
-2.00
46.00
2019
30.00
25.00
a. Calculate the average rate of return for each stock during the S-year period. Do not round intermediate calculations. Round your answers to bvo decimal places.
Stock A: 13.80 %
Stock B: 13.80 %
b. Suppose you had 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? Do not round intermediate calculations. Round your answers to two decimal places. Negative values, if any, should be indicated by a minus sign.
Year
Portfolio
2015
13 %
2016
25.50 %
2017
7 %
2018
22 %
2019
27.50 %
Average return
13.80 %
c. Calulate the standard deviation of returns for each stock and for the portfolio. Do not round intermediate calculations. Round your answers to two decimal places.
FA
Portfolio
Std. Dev.
d. Suppose you are a risk-averse investor. Assuming Stocks A and B are your only choices, would you prefer to hold Stock A, Stock 8, or the portfolio? Why?
A risk-averse investor should choose -Select- v, since it offers -Select-
expected return with -Select- v risk.
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