Stock A and B have the following historical returns:
Year Stock A's Returns (%) Stock B's Returns (%)
2004 -18.00 -14.50
2005 33.00 21.80
2006 15.00 30.50
2007 0.50 -7.60
2008 27.00 26.30
a) Calculate the average rate of return for each stock during the 5-year period.
b) Assume that you held the portfolio consisting of 50% stock A and 50% 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) Calculate the coefficient variation for each stock and for the portfolio.
e) Choose the best stock and explain your answer.