1. Compute the arithmetic mean annual rate of return for each stock. Which stock is most desirable by this measure? 2. Compute the standard deviation of the annual rate of return for each stock. By this measure, which is the preferable stock? 3. Compute the coefficient of variation for each stock. By this relative measure of risk, which stock is preferable?

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Show computation through excel.
During the past 5 years, you owned 2 stocks that had the following annual rates of return.
Year
1
2
3
4
5
Stock T
0.19
0.08
-0.12
-.030
0.15
Stock B
0.08
0.03
-0.09
0.02
0.04
1. Compute the arithmetic mean annual rate of return for each stock. Which stock is most
desirable by this measure?
2.
Compute the standard deviation of the annual rate of return for each stock. By this
measure, which is the preferable stock?
3. Compute the coefficient of variation for each stock. By this relative measure of risk,
which stock is preferable?
4. Compute the geometric mean rate of return for each stock.
5. Discuss the difference between the arithmetic mean return and the geometric mean
return of each stock. Relate the differences in the mean returns to the standards
deviation of the return for each stock.
Transcribed Image Text:Show computation through excel. During the past 5 years, you owned 2 stocks that had the following annual rates of return. Year 1 2 3 4 5 Stock T 0.19 0.08 -0.12 -.030 0.15 Stock B 0.08 0.03 -0.09 0.02 0.04 1. Compute the arithmetic mean annual rate of return for each stock. Which stock is most desirable by this measure? 2. Compute the standard deviation of the annual rate of return for each stock. By this measure, which is the preferable stock? 3. Compute the coefficient of variation for each stock. By this relative measure of risk, which stock is preferable? 4. Compute the geometric mean rate of return for each stock. 5. Discuss the difference between the arithmetic mean return and the geometric mean return of each stock. Relate the differences in the mean returns to the standards deviation of the return for each stock.
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