Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's Returns, rB 2016 (21.10 %) (14.70 %) 2017 23.50 28.50 2018 13.00 29.90 2019 (4.25 ) (10.40 ) 2020 27.75 5.60 Calculate the average rate of return for each stock during the period 2016 through 2020. Round your answers to two decimal places. Stock A: %
Stocks A and B have the following historical returns: Year Stock A's Returns, rA Stock B's Returns, rB 2016 (21.10 %) (14.70 %) 2017 23.50 28.50 2018 13.00 29.90 2019 (4.25 ) (10.40 ) 2020 27.75 5.60 Calculate the average rate of return for each stock during the period 2016 through 2020. Round your answers to two decimal places. Stock A: %
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
Related questions
Concept explainers
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.
Question
Stocks A and B have the following historical returns:
| Year | Stock A's Returns, rA | Stock B's Returns, rB | ||
| 2016 | (21.10 | %) | (14.70 | %) |
| 2017 | 23.50 | 28.50 | ||
| 2018 | 13.00 | 29.90 | ||
| 2019 | (4.25 | ) | (10.40 | ) |
| 2020 | 27.75 | 5.60 |
- 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: %
- 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.
%
- Calculate the standard deviation of returns for each stock and for the portfolio. Round your answers to two decimal places.
Stock A Stock B Portfolio Standard Deviation % % % - Calculate the coefficient of variation for each stock and for the portfolio. Round your answers to two decimal places.
Stock A Stock B Portfolio CV - Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio?
Transcribed Image Text:Attempts
Keep the Highest / 9
2. Problem 8.20 (Realized Rates of Return)
盟
eBook
Stocks A and B have the following historical returns:
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:
%
%
What would the average return on the portfolio have been during this period? Round your answer to two decimal places.
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.
Portfolio
%
c. Calculate the standard deviation of returns for each stock and for the portfolio. Round your answers to two decimal places.
Stock B
%
Standard Deviation
%
%
d. Calculate the coefficient of variation for each stock and for the portfolio. Round your answers to two decimal places.
Stock A
Stock B
Portfolio
CV
Stock A
Portfolio
Year
2016
2017
2018
2019
2020
e. Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio?
Stock A ✔
Stock A's Returns, ra
(21.10%)
23.50
13.00
(4.25)
27.75
Stock B's Returns, rg
(14.70%)
28.50
29.90
(10.40)
5.60
Year
2016
2017
2018
2019
2020
%
%
%
%
%
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 15 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education