Note: Do not use MicroSoft Excel or spredsheet. Explain the steps and formula fo
ID: 2769401 • Letter: N
Question
Note: Do not use MicroSoft Excel or spredsheet. Explain the steps and formula for each.
Stocks N and R have the following historical returns:
Year
Stock N
Stock R
2010
-18%
-11 %
2011
24%
29 %
2012
12%
44 %
2013
-5%
-7 %
2014
16%
23 %
1. Calculate the average rate of return for each stock during the 5-year period.
2. Assume that you are planning to hold a portfolio consisting of 35% of Stock N and 65% of Stock R. What is the realized rate of return on the portfolio in each year?
3. What is the average return on the portfolio for the 5 year period?
4. What is the standard deviation of returns for each stock and for the portfolio?
5. Calculate the coefficient of variation for each stock and for the portfolio?
Year
Stock N
Stock R
2010
-18%
-11 %
2011
24%
29 %
2012
12%
44 %
2013
-5%
-7 %
2014
16%
23 %
Explanation / Answer
Answer:1
The average rate of return for Stock N during the period 2010 through 2014 is given by
Average Return = ( -18 + 24.0 + 12.00 – 5 +16.00)/5 = 5.80%
The average rate of return for Stock R during the period 2010 through 2014 is given by
Average Return = ( -11 + 29 + 44 – 7 +23)/5 = 15.60%
Answer:2
Portfolio Return for 2010:
Portfolio Return = 0.35*(-18) + 0.65*(-11.00) = -13.45%
Portfolio Return for 2011:
Portfolio Return = 0.35*(24) + 0.65*(29.00) = 27.25%
Portfolio Return for 2012:
Portfolio Return = 0.35*(12) + 0.65*(44.00) = 32.8%
Portfolio Return for 2013:
Portfolio Return = 0.35*(-5) + 0.65*(-7.00) = -6.3%
Portfolio Return for 2014:
Portfolio Return = 0.35*(16) + 0.65*(23.00) = 20.55%
Answer:3
The average return on the portfolio have been during this period is given by
Average Return = ( -13.45 + 27.25+ 32.8 – 6.3 +20.55)/5 = 12.17%
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