Question

REALIZED RATES OF RETURN Stocks A and B have the following historical returns: Stock B's Returns, rs Stock A's Returns, rA Year - 13.50 % -15.00% 2011 19.60 31.75 2012 32.10 12.00 2013 -10.80 -4.00 2014 24.85 27.50 2015 a. Calculate the average rate of return for stock A during the period 2011 through 2015. Round your answer to two decimal places. % Calculate the average rate of return for stock B during the period 2011 through 2015. Round your answer to two decimal places. b. Assume that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would the realized rate of return on the portfolio have been each year? Round your answers to two decimal places. Enter a negative answer with a minus sign. Portfolio Year % 2011 2012 2013 2014 2015 What would the average return on the portfolio have been during this period? Round your answer to two decimal places. %

Answer 1

Caluclation of Average rate of Relurs for Stock A & Stock B year Slock As Relun stock B's Retusa 2011 -15% - 13.5 19.6 2012 31.75 32.1 2013 - 10-8 2014 - 4 2015 24.5 24.85 Total 52.25 52.25 52.25/5years syears 10.45 Average rate 52.25 of Reluso - (10.45 - 10.45 (6) Caludlation of Average returs on the portfolio rate of relus on the portfolio - - Propolion Retion on NetRetur 1 Palion Returns & Realised NetReluss year has been (445) SCOLA S (3) (2x3 TO -15 -75 -13.5 2011 - 6.75 si 19.6 4.8 2012 31.75 2012 is 15.875 32-1 16.05 2013 - 10.8 -5.4 i 2014 12.425 24.85 13.75 opy 27.5 2613 2017 26.13

Total Return = 2613+ 26.13 - 52.26 Average Return on portfolio = 52.26 = 10.45 (1-5)२ 2011 - -25-45 644.1 (0 stanidard devialione :- year Return (A) LAN -15 15- 10.45) av12 3145 (31-15-1045) (10- 10.45) 20५ -५ (-4-10-45) 2015 २ ३.5 (21.5 - 10-45] 31-16 21.3 463.69 2012 1. 2013 २.40 -14.45 208.80 1.05 २१०.10 1603-२१ formula in= [ {(x-2)2 1603:24 - 5-1 - 400-80 - 20.०२.

Sudland dewialion to stock B year Return on B (B-B) 2 2011 - 135 643.60 2012 19.6 83.72 (B-B) [-13.5–10:46] --23.95 [19.6 - 10.45 ] = 9.15 (32.1 - 1046] = 21.65 [-10.8 - 10:45] --21-26 24.86-10:46] - 14.4 2013 32-1 468.72 2014 -10-8 461.56 2015 24.85 201.36 1784.96 Standard deviation V 1484.96 5-1 = 1446-24 = 21.12 standard deviation for the portfolio - Vw one + weg + Axma 9 xw, 2 x Blog AB (Ipe) we need to find PAB - Coorelation & COXAB/2x02 Covariance = (A x (B-1) |-66 thens/A-A)*(6-B) is - (-25.46% -23.96] + (21-3x9.16) + (1.55 + (-14.45% -21.26) + (17-05 x 14-47

→ 609.52 + 194.89 + 33.56 + 307.06 + 245.52 » 1390.555 Covariance ive - 1390.65 = 248:11 correlation - 218.11 248.11 = .66 20.02x01.29 422-82 : Standard deniation in 5x20.02) + (-6* 21:12)+2x.5 x 20:02 xon X21:12 x .66 = 100.2 + 111.61 + 139.63 (d) coefficient of varialio! Standard denialiór Expected retuus Patfolio ShockB Stock A 18.14 20:02 -1.92 21.12= |22.02 The +299 10.45 10.45 10.45 conclu eture of Solock B in conclusion ! - | Risk& Return of stock A in 20.02 & 10.45 Risk & Return of Stock B in 21.12 x 10.45 Risk & Return of Patfolio in 18.44 4 10.45 alta 10:46

So portfolio is better than stock At Stock B - Since all options as have same Return but drist is varing. So polfolio have clesses crisk compared to Ay B stocks.