Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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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 r ̄A r ̄B
2014 -20.00% -5.00%
2016 42.00 15.00
2017 20.00 -13.00
2018 -8.00 50.00
2019 25.00 12.00
Calculate the average rate of return for each stock during the 5-year period.
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?
Calculate the standard deviation of returns for each stock and for the portfolio.
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,…
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.…
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
rA
rB
2014
-20.00%
-5.00%
2016
42.00
15.00
2017
20.00
-13.00
2018
-8.00
50.00
2019
25.00
12.00
a. Calculate the average rate of return for each stock during the 5-year period.
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?
c. Calculate the standard deviation of returns for each stock and for the 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?
Knowledge Booster
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