Stocks A and B have the following historical returns: Year 2016 2017 2018 2019 2020 20.05 a. Calculate the average rate of return for each stock during the period 2016 through 2020. Round your answers to two decimal places. Stock A: 11.23 Stock A's Returns, ra (18.60%) 34.25 14.75 (1.00) 26.75 Stock B: 11.23 % 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. Negative values should be indicated by a minus sign. Year Portfolio 2016 2017 2018 CV 2019 2020 -16.55 27.33 27.33 -5.35 Stock B's Returns, ra (14.50% ) 20.40 % % 96 23.40 What would the average return on the portfolio have been during this period? Round your answer to two decimal places. 39.90 (9.70) % % 11.23 c. Calculate the standard deviation of returns for each stock and for the portfolio. Round your answers to two decimal places. Stock B Stock A 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 Portfolio Stock B Ⓡ e. Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Portfolio v
Stocks A and B have the following historical returns: Year 2016 2017 2018 2019 2020 20.05 a. Calculate the average rate of return for each stock during the period 2016 through 2020. Round your answers to two decimal places. Stock A: 11.23 Stock A's Returns, ra (18.60%) 34.25 14.75 (1.00) 26.75 Stock B: 11.23 % 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. Negative values should be indicated by a minus sign. Year Portfolio 2016 2017 2018 CV 2019 2020 -16.55 27.33 27.33 -5.35 Stock B's Returns, ra (14.50% ) 20.40 % % 96 23.40 What would the average return on the portfolio have been during this period? Round your answer to two decimal places. 39.90 (9.70) % % 11.23 c. Calculate the standard deviation of returns for each stock and for the portfolio. Round your answers to two decimal places. Stock B Stock A 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 Portfolio Stock B Ⓡ e. Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Portfolio v
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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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
Transcribed Image Text:Stocks A and B have the following historical returns:
Year
2016
2017
2018
39.90
2019
(9.70)
2020
20.05
a. Calculate the average rate of return for each stock during the period 2016 through 2020. Round your answers to two decimal places.
Stock A: 11.23
%
Stock B: 11.23
%
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. Negative values should be indicated by a minus sign.
Portfolio
Stock A's Returns, ra
(18.60%)
34.25
14.75
(1.00)
26.75
CV
Stock A
Year
2016
Ⓡ
2017
%
2018
2019
2020
-16.55
27.33
Stock B's Returns, ra
(14.50% )
20.40
27.33
› ›
-5.35
23.40
What would the average return on the portfolio have been during this period? Round your answer to two decimal places.
%
%
11.23
c. Calculate the standard deviation of returns for each stock and for the portfolio. Round your answers to two decimal places.
Stock B
Stock A
Portfolio
%
Standard Deviation
%
d. Calculate the coefficient of variation for each stock and for the portfolio. Round your answers to two decimal places.
Stock B
Portfolio
96
%
e. Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio?
Portfolio
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