Percentages need to be entered in decimal format, for instance 3% would be entered as .03. That is the return for stock C by the way Adjust the portfolio to consist of 33.33% Stock A, 33.33% Stock B, and 33.33% Stock C (row 31). How does this change affect the portfolio average rate of return, standard deviation, and coefficient of variation versus when 50% was invested in Stock A and 50% in Stock B? Make some other changes in the percentage of stocks in the portfolio (Row 31), making sure that the percentages add up to 100%. For example, you could enter 25% for Stock A, 25% for Stock B, and 50% for Stock C. Notice that the average rate of return for the portfolio remains constant for each scenario, but the standard deviation changes. Would you prefer to hold a portfolio consisting only of Stocks A and B or a portfolio that also includes Stock C? Why or why not?
Percentages need to be entered in decimal format, for instance 3% would be entered as .03. That is the return for stock C by the way Adjust the portfolio to consist of 33.33% Stock A, 33.33% Stock B, and 33.33% Stock C (row 31). How does this change affect the portfolio average rate of return, standard deviation, and coefficient of variation versus when 50% was invested in Stock A and 50% in Stock B? Make some other changes in the percentage of stocks in the portfolio (Row 31), making sure that the percentages add up to 100%. For example, you could enter 25% for Stock A, 25% for Stock B, and 50% for Stock C. Notice that the average rate of return for the portfolio remains constant for each scenario, but the standard deviation changes. Would you prefer to hold a portfolio consisting only of Stocks A and B or a portfolio that also includes Stock C? Why or why not?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Percentages need to be entered in decimal format, for instance 3% would be entered as .03.
That is the return for stock C by the way
- Adjust the portfolio to consist of 33.33% Stock A, 33.33% Stock B, and 33.33% Stock C (row 31). How does this change affect the portfolio average
rate of return , standard deviation, and coefficient of variation versus when 50% was invested in Stock A and 50% in Stock B? - Make some other changes in the percentage of stocks in the portfolio (Row 31), making sure that the percentages add up to 100%. For example, you could enter 25% for Stock A, 25% for Stock B, and 50% for Stock C. Notice that the average rate of return for the portfolio remains constant for each scenario, but the standard deviation changes. Would you prefer to hold a portfolio consisting only of Stocks A and B or a portfolio that also includes Stock C? Why or why not?
Transcribed Image Text:C08
GRAPH
INSTRUCTIONS
Chapter 8 Spreadsheet-Related Problem (C08)
Realized Rates of Return
1. There are a number of instructions with which you should be familiar
to use these computerized models. These instructions appear in a
separate worksheet labeled INSTRUCTIONS. If you have not already
done so, you should read these instructions now. To read these
instructions, click on theworksheet labeled INSTRUCTIONS.
2. A graph which shows the return and standard deviation of each
stock and the portfolio will be displayed if you click the worsheet labeled
GRAPH at the bottom of this spreadsheet. To return to this worksheet,
click on the worksheet labeled C08 at the bottom of the GRAPH worksheet.
INPUT DATA:
ΚΕY OUTPUT:
Year
Stock A
Stock B
Stock C
Portfolio
-1
-18.00%
-14.50%
-16.25%
-2
33.00%
21.80%
27.40%
-3
15.00%
30.50%
22.75%
-4
-0.50%
-7.60%
-4.05%
-5
27.00%
26.30%
26.65%
f =
11.30%
11.30%
11.30%
20.79%
20.78%
20.13%
CV =
1.84
1.84
1.78
Percent in:
Stock A
Stock B
Stock C
Portfolio
50.00%
50.00%
0.00%
100.00%
Correlation coefficients, p
Stocks A & B
0.88
Stocks A & C
Stocks B & C
Transcribed Image Text:C08
GRAPH
INSTRUCTIONS
4
3
Sd Deviation
Return
2 -
1 -
Stock A
Stock B
Stock C
Portfolio
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education