a. Use the data given to calculate annual returns for Bartman, Reynolds, and the

Question

a. Use the data given to calculate annual returns for Bartman, Reynolds, and the Market Index, and then calculate average returns over the five-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the index.   Also, you cannot calculate the rate of return for 2005 because you do not have 2004 data.) Data as given in the problem are shown below: Bartman Industries Reynolds Incorporated Market Index Year Stock Price Dividend Stock Price Dividend Includes Divs. 2010 $17.250 $1.150 $48.750 $3.000 11,663.98 2009 14.750 1.060 52.300 2.900 8,785.70 2008 16.500 1.000 48.750 2.750 8,679.98 2007 10.750 0.950 57.250 2.500 6,434.03 2006 11.375 0.900 60.000 2.250 5,602.28 2005 7.625 0.850 55.750 2.000 4,705.97 We now calculate the rates of return for the two companies and the index: Bartman Reynolds Index 2010 2009 2008 2007 2006 Average Note: To get the average, you could get the column sum and divide by 5, but you could also use the function wizard, fx. Click fx, then statistical, then Average, and then use the mouse to select the proper range. Do this for Bartman and then copy the cell for the other items. b. Calculate the standard deviation of the returns for Bartman, Reynolds, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.)   Use the function wizard to calculate the standard deviations. Bartman Reynolds Index Standard deviation of returns c. Now calculate the coefficients of variation Bartman, Reynolds, and the Market Index. Bartman Reynolds Index Coefficient of Variation d. Construct a scatter diagram graph that shows Bartman a. Use the data given to calculate annual returns for Bartman, Reynolds, and the Market Index, and then calculate average returns over the five-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the index.   Also, you cannot calculate the rate of return for 2005 because you do not have 2004 data.) Data as given in the problem are shown below: Bartman Industries Reynolds Incorporated Market Index Year Stock Price Dividend Stock Price Dividend Includes Divs. 2010 $17.250 $1.150 $48.750 $3.000 11,663.98 2009 14.750 1.060 52.300 2.900 8,785.70 2008 16.500 1.000 48.750 2.750 8,679.98 2007 10.750 0.950 57.250 2.500 6,434.03 2006 11.375 0.900 60.000 2.250 5,602.28 2005 7.625 0.850 55.750 2.000 4,705.97 We now calculate the rates of return for the two companies and the index: Bartman Reynolds Index 2010 2009 2008 2007 2006 Average Note: To get the average, you could get the column sum and divide by 5, but you could also use the function wizard, fx. Click fx, then statistical, then Average, and then use the mouse to select the proper range. Do this for Bartman and then copy the cell for the other items. b. Calculate the standard deviation of the returns for Bartman, Reynolds, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.)   Use the function wizard to calculate the standard deviations. Bartman Reynolds Index Standard deviation of returns c. Now calculate the coefficients of variation Bartman, Reynolds, and the Market Index. Bartman Reynolds Index Coefficient of Variation d. Construct a scatter diagram graph that shows Bartman

Explanation / Answer

a.))We now calculate the rates of return for the two companies and the index: Bartman Reynolds Index 2007 24.7% -1.1% 32.8% 2006 -4.2% 13.2% 1.2% 2005 62.8% -10.0% 34.9% 2004 2.9% -0.4% 14.8% 2003 61.0% 11.7% 19.0% Average 29.4% 2.7% 20.6% Note: To get the average, you could get the column sum and divide by 5, but you could also use the function wizard, fx. Click fx, then statistical, then Average, and then use the mouse to select the proper range. Do this for Bartman and then copy the cell for the other items. b. Calculate the standard deviation of the returns for Bartman, Reynolds, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.)   Use the function wizard to calculate the standard deviations. Bartman Reynolds Index Standard deviation of returns 31.5% 9.7% 13.8% On a stand-alone basis, it would appear that Bartman is the most risky, Reynolds the least risky. c. Now calculate the coefficients of variation Bartman, Reynolds, and the Market Index. Divide the standard deviation by the average return: Bartman Reynolds Index Coefficient of Variation                          1.07                                3.63                               0.67 Reynolds now looks most risky, because its risk (SD) per unit of return is highest. d. Construct a scatter diagram graph that shows Bartman

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