Question

Consider the rate of return of stocks ABC and XYZ. 14 Year 2 3 ABC 20% 10 15 4 1 ΓΧΥΣ sex 12 18 1 -11 00:32:02 5 a. Calculate the arithmetic average return on these stocks over the sample period. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Arithmetic Average ABC |XYZ b. Which stock has greater dispersion around the mean return? XYZ ОАВС

Answer 1

A)

Arithmetic average return= ABC1+ABC2+.../ no of observations

for Rabc= (20+10+15+4+1)/5

= 10.00%

for Rxyz= (30+12+18+1-11)/5

=10.00%

B)

ANSWER IS XYZ

SInce these both have same means whe have to tell about dispersion( deviation) with the given returns. The abc stock is haivng from 1 to 20% but where as the dispersion is more for xyz stock from negative to positive.

Hence XYZ is more dispersive.

C)

Geometirc average returns= [(1+r1)*(1+r2)....]^(1/n)-1

For ABC stock=> [(1+0.2)*(1+0.1)*(1+0.15)*(1+0.04)*(1+0.01)]^{1/5)-1 = 9.78%

For XYZ stock=> ((1+0.3)*(1+0.12)*(1+0.18)*(1+0.01)*(1-0.11))^(1/5)-1 = 9.08%

Stock ABC has the highest returns . We arent able to determine this using the A.M returns

D)

Expected return= sumamtion(probability*return)

here equally likely means =1/5=0.2 for each return

= (0.2*0.2)+(0.2*0.1)+(0.2*0.15)+(0.2*0.04)+(0.2*0.01)

Expected return for ABC=10.00%

for XYZ= (0.2*0.3)+(0.2*0.12)+(0.2*0.18)+(0.2*0.01)-(0.2*0.11)

Expected return for XYZ=10.00%