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
Chapter2: The Domestic And International Financial Marketplace
Section: Chapter Questions
Problem 1P
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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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