The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six-month period.   Month Madison Cookies Sophie Electric 1 -0.04 0.07 2 0.06 -0.02 3 -0.07 -0.10 4 0.12 0.15 5 -0.02 -0.06 6 0.05 0.02   Compute the following: a. Average monthly rate of return, Ri, for each stock b. Standard deviation of returns for each stock c. Covariance between the rates of return d. The correlation coefficient between the rates of return What level of correlation would you have expected before performing your calculations? How did your expectations compare with the computed correlation? Would these two stocks be good choices for diversification? Why or why not?

Q: Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's…

A: The objective of the question is to calculate the average rate of return for Stocks A and B over the…

Q: If the return on stock A in year 1 was 11 %, in year 2 was 19 %, in year 3 was 4 % and in year 4 was…

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Q: the ata in the following 曲 a. Average return and volatility for each stock. b. Covariance between…

A: In simple words average return depicts the arithmetic average return of historical returns. where as…

Q: Compute the standard deviation of the five monthly returns for PG&E: 1.25 percent, −1.50 percent,…

A: Standard Deviation is a measure of risk. In other words, It measures the extent of variability of…

Q: You've observed the following returns on SkyNet Data Corporation's stock over the past five years:…

A: Average Return :  Standard deviation : Standard deviation is an overall risk of a security. It is an…

Q: Use the means and standard deviations of return for MSFT and TSLA in percent per month that are…

A: Opportunity set is the set of all possible portfolios that an investor may construct from a given…

Q: A stock has had returns of -5.32 percent, -7.58 percent, 4.68 percent, 7.7 percent, 8.98 percent,…

A: The below expression can be used to calculate geometric average return:

Q: Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's Returns,…

A: Here,YearStock A's ReturnStock B's…

Q: You’ve observed the following returns on Pine Computer’s stock over the past five years: −26.4…

A: Variable in the question: YearReturn (%)1-26.4214.6332.242.8521.8

Q: Consider the two (excess return) index-model regression results for stocks A and B. The risk-free…

A: Risk-free rate  (Rf) = 7%Market average return = 12%ParticularsStock AStock BIndex model regression…

Q: Calculate the variance and standard deviation of each stock.

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Q: owing return data for the market and for each of the investments over the past 10 0-2019 Year 2010…

A: Beta measures the risk of a stock with respect to the overall market. The beta for the overall…

Q: The last four years of returns for a stock are as shown here: a. What is the average annual return?…

A: Year Return 1 -3.60% 2 27.50% 3 12.40% 4 3.80% To Find: Average Anual return Variance…

Q: Monthly Returns Stock A Stock B Portfolio Jan 1% 1% 1% Feb 4% - 2% 1% Mar -7% 9% 1% Apr 2% 0% 1% May…

A: Expected Return pf stock A = mean or average of stock A's returnmean or average of stock A's return…

Q: A stock has had returns of 21 percent, 13 percent, 8 percent, -11 percent, -3 percent, and 17…

A: The return on stock refers to the profit that the stock provides to the investor for their…

Q: (Related to Checkpoint 7.2) (Calculating the geometric and arithmetic average rate of return) Marsh…

A: The annual rate of return is the amount of return earned on the investment expressed in terms of…

Q: Using the data in the following table,, estimate the: a. Average return and volatility for each…

A: The standard deviation is a statistical indicator of market volatility, which gauges how far prices…

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A: Note : As per our guidelines, we can only answer up to three subparts. Please post other parts…

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A: The problem case focuses on calculating the annual rate of return for each year for stocks of Hariss…

Q: Last year, your investment in large-company stocks earned an average of 6 percent while T-bills…

A: The correct answer to the question is "Risk premium".According to the Capital Asset Pricing Model…

Q: A stock has an average annual historical return of 6.03 percent and a standard deviation of 6.81…

A: Normal distribution curve is a bell shaped symmetric curve where the mean value remains at the…

Q: Using the data in the following table, estimate the average return and volatility for each stock.…

A: Step 1: Calculate the average return for each stock. For the average return, we must add all of the…

Q: The returns of Mazoon Company is as follows. Year 1=16, Year 2=(-11), Year 3=28, Year4=12. The…

A: Standard deviation refers to the variation or dispersion in the values of a data set. Standard…

Q: The last four years of returns for a stock are shown here: - a. What is the average annual return?…

A: Given the table of last four years of returns for a stock,1234- 3.61%+ 27.93%+ 11.83%+ 3.92% We have…

Q: iv. Treynor measure 9.8330

A: First, I'm going to list the formula used to determine the Missing value (Treynor's measure) for…

Q: You find a certain stock that had returns of 15 percent, -17 percent, 23 percent, and 11 percent for…

A: Standard deviation is computed by following formula-Standard deviation = WhereR = return of stock N…

Q: Suppose the returns on an asset are normally distributed. The historical average annual return for…

A: Variables in the question:Average annual return for the asset=5.2%Standard deviation=10.6%

Q: Measuring risk and rate return) Given the following holding-period returns, calculate the average…

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Q: Closing prices for Sillech and New Mines for the years 1999-2014 are shown below. a. Calculate the…

A: To Find: Total return for each stock Expected return Variance Standard Deviation Co-Variance

Q: Below you will find the closing stock prices for Auction Makers over a three-week period. Calculate…

A: Step 1: Understanding the Moving AveragesA moving average smoothens out fluctuations in data to help…

Q: Arithmetic average return Geometric average return % olo olo %

A: Return 1 = r1 = 39.50%/100 = 0.3950 in decimalReturn 2 = r2 = 23.50%/100 = 0.2350 in decimalReturn 3…

Q: Directions: Compute the total returns, the average of returns, and the standard deviation of the…

A: Data given: ERGH Inc., Year Stock Price (P) Jan-21 0.088 Feb-21 0.090 Mar-21 0.097…

Q: The following shows the expected percentage returns on three stocks over the next six years: Stock…

A: Here,

Q: What is the (exact) nominal return on an investment that earns a real return of 14.7% while…

A: Solution:- Nominal rate of return means the rate of return inclusive the effect of inflation.

Q: (Click on the following icon g in order to copy its contents into a spreadsheet.) Year 1 4 Return -…

A: A statistical measure that represents the spread among the return of the investment is term as the…

Q: The resulting SML equation for Laternios is given by: Er Laternios + = X (E[rM] - rf)

A: Regression analysis on a stock provides insights into the relationship between the stock's returns…

Q: Which one of the following best describes an arithmetic average return?

A: Arithmetic average return is the mean of all returns and hence is computed by adding all the returns…

Q: stock has had returns of -7.77 percent, -4.59 percent, 5.87 percent, 9.98 percent, 8.7 percent, and…

A: The below expression can be used to calculate geometric average return:

Q: 18.93 percent, −15.21 percent, 12.41 percent, and 25.54 percent for the past five years. What is the…

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Q: Look up the daily trading volume for the following stocks during a recent five-day period: • Merck •…

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Q: Consider the two (excess return) index-model regression results for stocks A and B. The risk-free…

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Q: A stock has had returns of -19.1 percent, 29.1 percent, 25.2 percent, -10.2 percent, 34.9 percent,…

A: r1 = - 0.191 r2 = 0.291 r3 = 0.252 r4 = - 0.102 r5 = 0.349 r6 = 0.271   Number of returns (n) = 6

Q: Use this information for problems through 24. The stock was priced at 165.13. The expirations are…

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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.