Stocks A and B have the following historical returns: Calculate the average rate
ID: 2638056 • Letter: S
Question
Stocks A and B have the following historical returns:
Calculate the average rate of return for each stock during the 5-year period. Round your answers to two decimal places.
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? Round your answers to two decimal places.
Calculate the standard deviation of returns for each stock and for the portfolio. Round your answers to two decimal places.
Explanation / Answer
Stock A Year Return in % Return- Mean Square of (Return-Mean) 2009 -23.80 -33.29 1108.22 2010 24.50 15.01 225.30 2011 17.75 8.26 68.23 2012 -6.00 -15.49 239.94 2013 35.00 25.51 650.76 Summation 47.45 2292.45 Average= Sum of Returs/ No: of years 9.49 Standard Deviation= Square root{[Sum of Square of (Return-Mean)]/ (No: of years-1)} 21.39 Stock B Year Return in % Return- Mean Square of (Return-Mean) 2009 -16.10 -25.59 654.85 2010 15.50 6.01 36.12 2011 20.30 10.81 116.86 2012 -6.50 -15.99 255.68 2013 34.25 24.76 613.06 Summation 47.45 1676.56 Average= Sum of Returs/ No: of years 9.49 Standard Deviation= Square root{[Sum of Square of (Return-Mean)]/ (No: of years-1)} 20.47 If the weights of Stock is 50% each, then expected returns from the portfolio would have been as follows: Year Return from Stock A Return from Stock A Return from the portfolio 2009 -23.80 -16.10 -19.95 2010 24.50 15.50 20.00 2011 17.75 20.30 19.03 2012 -6.00 -6.50 -6.25 2013 35.00 34.25 34.63 Thus, standard deviation from the portfolio can be computed as follows: Year Return in % Return- Mean Square of (Return-Mean) 2009 -19.95 -29.44 866.83 2010 20.00 10.51 110.42 2011 19.03 9.54 90.97 2012 -6.25 -15.74 247.81 2013 34.63 25.14 631.92 Summation 47.46 1947.95 Average= Sum of Returs/ No: of years 9.49 Standard Deviation= Square root{[Sum of Square of (Return-Mean)]/ (No: of years-1)} 22.07