Stock A and stock C have the following historical returns: Year Stock A Return Beta Stock C Return Beta 2017 (18%) 0.80 (14.50) 0.90 2018 33% 1.5 21.80% 2.0 2019 15% 2.0 30.50% 1.0 2020 (5.50%) -0.90 (7.60%) -0.50 2021 27% 1.0 26.30% 1.5 a. Calculate the average rate of return for each stock during the period 2017-2021 b. Assume you want to create a portfolio consisting of 60 percent of stock A and 40 percent of stock C, b.1. What would be your realized rate of return on the portfolio have been each year? b.2. What would be your average rate of return on the portfolio have been during this period? c. Calculate the standard deviation of the portfolio return d. Calculate the coefficient of variation for each stock and for the portfolio. e. Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why?
Stock A and stock C have the following historical returns: Year Stock A Return Beta Stock C Return Beta 2017 (18%) 0.80 (14.50) 0.90 2018 33% 1.5 21.80% 2.0 2019 15% 2.0 30.50% 1.0 2020 (5.50%) -0.90 (7.60%) -0.50 2021 27% 1.0 26.30% 1.5 a. Calculate the average rate of return for each stock during the period 2017-2021 b. Assume you want to create a portfolio consisting of 60 percent of stock A and 40 percent of stock C, b.1. What would be your realized rate of return on the portfolio have been each year? b.2. What would be your average rate of return on the portfolio have been during this period? c. Calculate the standard deviation of the portfolio return d. Calculate the coefficient of variation for each stock and for the portfolio. e. Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why?
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
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Question
Stock A and stock C have the following historical returns:
| Year | Stock A Return | Beta | Stock C Return | Beta |
| 2017 | (18%) | 0.80 | (14.50) | 0.90 |
| 2018 | 33% | 1.5 | 21.80% | 2.0 |
| 2019 | 15% | 2.0 | 30.50% | 1.0 |
| 2020 | (5.50%) | -0.90 | (7.60%) | -0.50 |
| 2021 | 27% | 1.0 | 26.30% | 1.5 |
a. Calculate the average
b. Assume you want to create a portfolio consisting of 60 percent of stock A and 40 percent of stock C,
b.1. What would be your realized rate of return on the portfolio have been each year?
b.2. What would be your average rate of return on the portfolio have been during this period?
c. Calculate the standard deviation of the portfolio return
d. Calculate the coefficient of variation for each stock and for the portfolio.
e. Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why?
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