Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's Returns, re 2016 (23.80%) 2017 22.50 (17.70%) 24.50 2018 14.25 24.00 2019 2020 (2.25) 25.00 (9.70) 14.60 % 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: Stock B: % 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 Portfollo 2016 % 2017 % 2018 % 2019 % 2020 % 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. Standard Deviation Stock A % Stock B % Portfolio %
Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's Returns, re 2016 (23.80%) 2017 22.50 (17.70%) 24.50 2018 14.25 24.00 2019 2020 (2.25) 25.00 (9.70) 14.60 % 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: Stock B: % 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 Portfollo 2016 % 2017 % 2018 % 2019 % 2020 % 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. Standard Deviation Stock A % Stock B % Portfolio %
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.
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Transcribed Image Text:Stocks A and B have the following historical returns:
2017
2018
2019
2020
Year
Stock A's Returns, "A
Stock B's Returns, r
2016
(23.80%)
22.50
(17.70%)
24.50
ITT
14.25
(2.25)
25.00
24.00
(9.70)
14.60
%
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:
Stock B:
%
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
%
2019
%
2020
%
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.
Standard Deviation
Stock A
%
Stock B
%
Portfolio
%
d. Calculate the coefficient of variation for each stock and for the portfolio. Round your answers to two decimal places.
CV
Stock A
Stock B
Portfolio
e. Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio?
-Select-
✓
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