Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Historical Realized Rates of Return
You are considering an investment in either individual stocks or a portíolio of stocks. The two stocks you are researching, Stock A and Stock B, have the folloving historical retums:
Year
2015
-22.00%
-4.00%
2016
34.00
17.00
2017
29.00
-15.00
2018
-2.00
46.00
2019
30.00
25.00
a. Calculate the average rate of return for each stock during the 5-year period. Do not round intermediate calculations. Round your ansvers to two decimal places.
Stock A:
Stock 8:
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 ansviers to bwo decimal places. Negative values, if any, should be indicated by a minus sign.
Year
Portfolio
2015
2016
2017
2018
2019
Average return
c. Calculate the standard deviation of returns for each stock and for the portfolio. Do not round intermediate calculations. Round your ansvwers to two decimal places.
FA
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- v
since it offers -Select- vexpected return with -Select- v risk.
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