Question

Stocks A and B have the following historical returns Year Stock A'sReturns, A Stock B's Returns, rB 2011 2012 2013 2014 2015 23.00%, 26.75 15.75 3.50 29.50 1 7.50% 16,80 26.40 10.40 30.20 a. Calculate the average rate of retum for stock A during the period 2011 through 2015. Round your answer to two decimal places. Calculate the average rate of retum for stock 8 during the period 2011 through 2015. Round your answer to two decimal places, b Assume that someone held a portfolio consisting of S % of Stock A and S0% of Stock B what would the ealized ate of return on the portfolio have been each year? Round your answers to t o deci al places. Enter a negative answer with a minus sign. Year 2011 2012 2013 2014 201s Portfolio What would the average return on the portfolio have been during this period? Round your answer to two decimal places c. Calculate the standard deviation of returns for each stock and for the portfolio. Round your answers to two decimal places Stock A Stock B Portfolio Standard Deviation d. Calculate the coefficient of variation for each stock and for the portfolio, Round your answers to two decimal places. Stock A Stock Portfolio CV e. Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio?

Answer 1

a)
Calculate the average rate of return for stock A during the period 2011 through 2015. Round your answer to two decimal places.
Stock A = Average(-23%,26.75%,15.75%,-3.50%,29.50%)	9.10%
Calculate the average rate of return for stock B during the period 2011 through 2015. Round your answer to two decimal places.
Stock B = Average(-17.50%,16.80%,26.40%,-10.40%,30.20%)	9.10%
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? Round your answers to two decimal places. Enter a negative answer with a minus sign.
Year	Return Stock A x 50%	Return Stock B x 50%	Portfolio
2011	-11.50%	-8.75%	-20.25%
2012	13.38%	8.40%	21.77%
2013	7.88%	13.20%	21.07%
2014	-1.75%	-5.20%	-6.95%
2015	14.75%	15.10%	29.85%
What would the average return on the portfolio have been during this period? Round your answer to two decimal places.
Average(-20.25%,21.77%,21.07%,-6.95%,29.85%)	9.10%
c) Calculate the standard deviation of returns for each stock and for the portfolio. Round your answers to two decimal places.
	Stock A	Stock B	Portfolio
Std. Dev. =	22.14%	21.75%	21.53%
Stock A = STDV(-23%,26.75%,15.75%,-3.50%,29.50%)
Stock B = STDV(-17.50%,16.80%,26.40%,-10.40%,30.20%)
Portfolio = STDV(-20.25%,21.77%,21.07%,-6.95%,29.85%)
d) Calculate the coefficient of variation for each stock and for the portfolio. Round your answers to two decimal places.
Coefficient of Variation = Std.Dev/ Average Returns
	Stock A	Stock B	Portfolio
Coef. Var.	2.43	2.39	2.37
e)Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio?
The Portfolio
A risk-averse investor would prefer to hold the portfolio as it has the lowest coefficient of variation.