6-13)
You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching, stocks A and B, have the following historical returns:
Year
rA
rB
2009
-20.00%
-5.00%
2010
42.00
15.00
2011
20.00
-13.00
2012
-8.00
50.00
2013
25.00
12.00
a. Calculate the average rate of return for each stock during the 5-year period.
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?
c. Calculate the standard deviation of returns for each stock and for the portfolio.
d. 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?
Please show work for all problems, thank you!!
6-13)
You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching, stocks A and B, have the following historical returns:
| Year | rA | rB |
| 2009 | -20.00% | -5.00% |
| 2010 | 42.00 | 15.00 |
| 2011 | 20.00 | -13.00 |
| 2012 | -8.00 | 50.00 |
| 2013 | 25.00 | 12.00 |
a. Calculate the average rate of return for each stock during the 5-year period.
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?
c. Calculate the standard deviation of returns for each stock and for the portfolio.
d. 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?
Please show work for all problems, thank you!!
Related questions
Stocks A and B have the following historical returns.
| Year | Stock A returns (%) | Stock B returns (%) |
| 1998 | -18 | -14.5 |
| 1999 | 33 | 21.8 |
| 2000 | 15 | 30.5 |
| 2001 | -0.50 | -7.6 |
| 2002 | 27 | 26.3 |
Calculate the average return for each stock during the period 1998 through 2002. (8 marks)
Assume that someone held a portfolio consisting of 50 percent stock A and 50 percent stock B. What would have been the realized rate of return on the portfolio in each year from 1998 through 2002? What would have been the average return on the portfolio during this period?
(9 marks)
Calculate the standard deviation of returns for each stock and for the portfolio and explain what each figure mean. (8 marks)
