Question

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 14 percent and standard deviation of 36 percent. The average return and standard deviation of Idol Staff are 17 percent and 32 percent; and of Poker R-Us are 11 percent and 30 percent. Rank Stock

Answer 1

Question 1

Given

Computation of coefficient of variation to rank the stock

Particulars/Stock	Rail Haul	Idol Staff	Poker-R-U's
Average Return($\fn_jvn \overline{x}$)	14	17	11
Standard deviation($\fn_jvn \sigma$)	36	32	30
Coefficient of variation($\fn_jvn \sigma$/$\fn_jvn \overline{x}$)	2.57	1.88	2.73

Rank	Stock	Reason
1	Poker-R-U's	Higher Coefficient of variation
2	Rail Haul
3	Idol Staff	Lower Coefficient of Variation

Question 2

Computation of coefficient of variation

Decade	Average Return	Standard Deviation	Coefficient of variation
1950s	2.6	1.0	0.38
1960s	4.7	1.3	0.28
1970s	6.1	2.1	0.34
1980s	8.3	3.0	0.36
1990s	5.4	1.5	0.28
2000s	2.3	2.2	0.96

Question 3

Company	Capital gain per share($)	Dividend per share($)	Total return per share($)	Total return($)
Johnson controls	12.96	1.19	14.15	6367.5
Medtronic	-4.06	0.43	-3.63	-1089
Direct TV	-0.55		-0.55	-330
Qualcomm	-4.16	0.4	-3.76	-752

Total return on portfolio(dollar return) = $4196.5

Computation of portfolio value at the beginning

(450$\fn_jvn \times$73.01)+(300$\fn_jvn \times$57.67)+(600$\fn_jvn \times$25.04)+(200$\fn_jvn \times$43.18) = $73815.5

Percentage of portfolio return = 5.68%

Question 4

Computation of average return and standard deviation of Estee lauder

Year	Return(X)	X-$\fn_jvn \overline{x}$	(X-$\fn_jvn \overline{x}$)2
year 1	25.3	-14.6	213.16
year 2	-38	-77.9	6068.41
year 3	19.5	-20.4	416.16
year 4	51.8	11.9	141.61
year 5	-18.7	-58.6	3433.96

Average return($\fn_jvn \overline{x}$) = 39.9

Standard deviation = $\fn_jvn \sqrt{}$(X-$\fn_jvn \overline{x}$)² /n =45.33

Computation of average return and standard deviation of Loew's companies

Year	Return(X)	X-$\fn_jvn \overline{x}$	(X-$\fn_jvn \overline{x}$)2
year 1	-7.0	-54.1	2926.81
year 2	18	-29.1	846.81
year 3	6.1	-41	1681
year 4	58	10.9	118.81
year 5	-28	-75.1	5640.01

Average return($\fn_jvn \overline{x}$) = 47.1

Standard deviation = $\fn_jvn \sqrt{}$(X-$\fn_jvn \overline{x}$)² /n =47.36

Particulars/stock	Estee lauder	Loew's companies
Average Return	39.9	47.1
Standard deviation	45.33	47.36
Coefficient of variation	1.16	1.005

Loew's companies stocks are better because of less coefficient of variation.

Answer 2

Question 1

Given

Computation of coefficient of variation to rank the stock

Particulars/Stock	Rail Haul	Idol Staff	Poker-R-U's
Average Return($\fn_jvn \overline{x}$)	14	17	11
Standard deviation($\fn_jvn \sigma$)	36	32	30
Coefficient of variation($\fn_jvn \sigma$/$\fn_jvn \overline{x}$)	2.57	1.88	2.73

Rank	Stock	Reason
1	Poker-R-U's	Higher Coefficient of variation
2	Rail Haul
3	Idol Staff	Lower Coefficient of Variation

Question 2

Computation of coefficient of variation

Decade	Average Return	Standard Deviation	Coefficient of variation
1950s	2.6	1.0	0.38
1960s	4.7	1.3	0.28
1970s	6.1	2.1	0.34
1980s	8.3	3.0	0.36
1990s	5.4	1.5	0.28
2000s	2.3	2.2	0.96

Question 3

Company	Capital gain per share($)	Dividend per share($)	Total return per share($)	Total return($)
Johnson controls	12.96	1.19	14.15	6367.5
Medtronic	-4.06	0.43	-3.63	-1089
Direct TV	-0.55		-0.55	-330
Qualcomm	-4.16	0.4	-3.76	-752

Total return on portfolio(dollar return) = $4196.5

Computation of portfolio value at the beginning

(450$\fn_jvn \times$73.01)+(300$\fn_jvn \times$57.67)+(600$\fn_jvn \times$25.04)+(200$\fn_jvn \times$43.18) = $73815.5

Percentage of portfolio return = 5.68%

Question 4

Computation of average return and standard deviation of Estee lauder

Year	Return(X)	X-$\fn_jvn \overline{x}$	(X-$\fn_jvn \overline{x}$)2
year 1	25.3	-14.6	213.16
year 2	-38	-77.9	6068.41
year 3	19.5	-20.4	416.16
year 4	51.8	11.9	141.61
year 5	-18.7	-58.6	3433.96

Average return($\fn_jvn \overline{x}$) = 39.9

Standard deviation = $\fn_jvn \sqrt{}$(X-$\fn_jvn \overline{x}$)² /n =45.33

Computation of average return and standard deviation of Loew's companies

Year	Return(X)	X-$\fn_jvn \overline{x}$	(X-$\fn_jvn \overline{x}$)2
year 1	-7.0	-54.1	2926.81
year 2	18	-29.1	846.81
year 3	6.1	-41	1681
year 4	58	10.9	118.81
year 5	-28	-75.1	5640.01

Average return($\fn_jvn \overline{x}$) = 47.1

Standard deviation = $\fn_jvn \sqrt{}$(X-$\fn_jvn \overline{x}$)² /n =47.36

Particulars/stock	Estee lauder	Loew's companies
Average Return	39.9	47.1
Standard deviation	45.33	47.36
Coefficient of variation	1.16	1.005

Loew's companies stocks are better because of less coefficient of variation.