Question

Stocks A and B have the following historical returns:

Rb YearRa -18% | -24% 24 5 34 56

1. Calculate the arithmetic average return for each stock.

2. Calculate the standard deviation of returns for each stock.

3. Assume that 50% of your portfolio is invested in Stock A and the rest is invested in Stock B. Based on this information, what is your portfolio’s realized return?

4. If 50% of your portfolio is invested in Stock A and the rest is invested in Stock B, what is the average return on the portfolio for the 5-year period?

Answer 1

New Microsoft Office Excel Worksheet Microsoft Excel HomeInsertPage LayoutFormulas Data Review View Σ AutoSum cut Copy Format Painter »-소, 涅涅主Merge & Center. S , % , 'alf: Conditional Format -Cell- Insert Delete Format Sort & FilterSelect Find & B 1 프-ER 2 Clear Formatting as Table Styles Cells Alignment Styles Editing f24 K479 478 Year Return in % R. Return in % Rb 18 481 56 Average returnUsing average return 84 1-Average return Using average return function in MS excel AVERAGE H479:H483) 12 function in MS excel AVERAGE K479 K483) 2-standard deviation of return = Using STDEVp function in tandard deviation of return Using 485 MS excel 27.07 STDEVp function in MS excel 27.01 TDEVP H479:H483 TDEVP(K479 K483) 486 3- Portfolio return (weight Rareturn in Ra)+(weightRb return in RB) 487 Year Return in %Ra weight 18 Return in % Rb 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 13 15 45 12.00 491 492 93 Portfolio realized return-sum of portfolio return Portfolio return = (weight Ra"return in Ral+iweightRb return in RB 4-average return on portfolio over 5 year period [.5"12)4.5"12) 12 -4 4 1 Sheet15 Sheet16 Sheet17 Sheet18 Sheet19 Sheet20 Sheet21 Sheet22 Sheet23 Sheet24 Ready Circular References 12:16 PM ▲ wil @謦 ㄧ賢4: sai/2019

Year		Return in % Ra	Year		Return in % Rb
1		-18	1		-24
2		44	2		24
3		-22	3		-4
4		22	4		8
5		34	5		56
1-Average return = Using average return function in MS excel	AVERAGE(H479:H483)	12	Average return = Using average return function in MS excel	AVERAGE(K479:K483)	12
2-Standard deviation of return = Using STDEVp function in MS excel	STDEVP(H479:H483)	27.07	Standard deviation of return = Using STDEVp function in MS excel	STDEVP(K479:K483)	27.01
3-
Year	Return in % Ra	weight	Return in % Rb	weight	Portfolio return = (weight Ra*return in Ra)+(weightRb*return in RB)
1	-18	0.5	-24	0.5	-21
2	44	0.5	24	0.5	34
3	-22	0.5	-4	0.5	-13
4	22	0.5	8	0.5	15
5	34	0.5	56	0.5	45
Portfolio realized return = sum of portfolio return					12.00
4-average return on portfolio over 5 year period	Portfolio return = (weight Ra*return in Ra)+(weightRb*return in RB)	(.5*12)+(.5*12)	12