Task: Historical Realized Rates of Return
Stocks A and B have the following historical returns:
| Year |
Stock A's Returns, |
|
| 2001 |
-18.00% |
-14.50% |
| 2002 |
33.00 |
21.80 |
| 2003 |
15.00 |
30.50 |
| 2004 |
0.50 |
(7.60) |
| 2005 |
27.00 |
26.30 |
a. Calculate the average rate of return for each stock during the 5-year period.
b. Assume that someone 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?
| Year |
Stock A |
Stock B |
Portfolio Return |
| 2001 |
-18.00% |
-14.50% |
-16.25% |
| 2002 |
33.00 |
21.80 |
|
| 2003 |
15.00 |
30.50 |
|
| 2004 |
0.50 |
(7.60) |
|
| 2005 |
27.00 |
26.30 |
|
Average rate of return -3.485%
c. Calculate the standard deviation of returns for each stock and for the portfolio.
1507.20% 1696.23% #DIV/0!
d. Calculate the coefficient of variation for each stock and for the portfolio.
e. If you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why?