You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching, Stock A and Stock B, have the following historical returns: Year 2017 2018 2019 TA -17.00% 37.00 FB -6.00% 16.00 -12.00 28.00 2020 -5.00 47.00 2021 23.00 21.00 a. Calculate the average rate of return for each stock during the 5-year period. Do not round intermediate calculations. Round your answers to two decimal places. Stock A: Stock B: % % b. Suppose you had held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate of return on the portfolio in each year? What would have been the average return on the portfolio during this period? Do not round intermediate calculations. Round your answers to two decimal places. Negative values, if any, should be indicated by a minus sign. Portfolio Year 2017 2018 2019 2020 2021 Average return c. Calculate the standard deviation of returns for each stock and for the portfolio. Do not round intermediate calculations. Round your answers to two decimal places. FA % FB % % % % % % % Portfolio % Std. Dev. d. Suppose you are a risk-averse investor. Assuming Stocks A and B are your only choices, would you prefer to hold Stock A, Stock B, or the portfolio? Why? A risk-averse investor should choose -Select-, since it offers -Select- expected return with -Select-risk.
You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching, Stock A and Stock B, have the following historical returns: Year 2017 2018 2019 TA -17.00% 37.00 FB -6.00% 16.00 -12.00 28.00 2020 -5.00 47.00 2021 23.00 21.00 a. Calculate the average rate of return for each stock during the 5-year period. Do not round intermediate calculations. Round your answers to two decimal places. Stock A: Stock B: % % b. Suppose you had held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate of return on the portfolio in each year? What would have been the average return on the portfolio during this period? Do not round intermediate calculations. Round your answers to two decimal places. Negative values, if any, should be indicated by a minus sign. Portfolio Year 2017 2018 2019 2020 2021 Average return c. Calculate the standard deviation of returns for each stock and for the portfolio. Do not round intermediate calculations. Round your answers to two decimal places. FA % FB % % % % % % % Portfolio % Std. Dev. d. Suppose you are a risk-averse investor. Assuming Stocks A and B are your only choices, would you prefer to hold Stock A, Stock B, or the portfolio? Why? A risk-averse investor should choose -Select-, since it offers -Select- expected return with -Select-risk.
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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Transcribed Image Text:Historical Realized Rates of Return
You are considering an investment in either individual stocks or a portfolio of stocks. The two stocks you are researching, Stock A and Stock B, have the following historical returns:
ΤΑ
-17.00%
37.00
28.00
ЇВ
-6.00%
16.00
-12.00
-5.00
47.00
23.00
21.00
a. Calculate the average rate of return for each stock during the 5-year period. Do not round intermediate calculations. Round your answers to two decimal places.
Stock A:
Stock B:
%
%
Std. Dev.
b. Suppose you had held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate of return on the portfolio in each year? What
would have been the average return on the portfolio during this period? Do not round intermediate calculations. Round your answers to two decimal places. Negative
values, if any, should be indicated by a minus sign.
Year
2017
2018
2019
2020
2021
Average return
c. Calculate the standard deviation of returns for each stock and for the portfolio. Do not round intermediate calculations. Round your answers to two decimal places.
ΤΑ
IB
Portfolio
%
%
%
%
%
%
%
Year
2017
2018
2019
2020
2021
%
A risk-averse investor should choose -Select-
I
Portfolio
d. Suppose you are a risk-averse investor. Assuming Stocks A and B are your only choices, would you prefer to hold Stock A, Stock B, or the portfolio? Why?
since it offers -Select- expected return with -Select-
%
risk.
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