Assignment:
Stock A and B have the following historical returns:
YEAR STOCK A'S RETURNS STOCK B'S RETURNS
1998 (18.00%) (14.50%)
1999 33.00% 21.80%
2000 15.00% 30.50%
2001 (0.50%) (7.60%)
2002 27.00% 26.30%
Question 1: Calculate the average rate of return for each stock during the period 1998 through 2002.
Question 2: Assume that an investor held a portfolio consisting of 35% of Stock A and 65% of Stock B. What would be i) the average return of the portfolio, and ii) the beta of the portfolio in each year, during the period 1998 through 2002?
Question 3: Calculate the standard deviation of returns for each stock and for the portfolio.
Question 4: Calculate the coefficient of variation for each stock and for the portfolio.
Question 5: If you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio?