Purchase Solution

Return and Risk

Not what you're looking for?

Ask Custom Question

Over the past 10 years, Molly O'Rourke has slowing built a diversified portfolio of common stock. Currently her portfolio includes 20 common stock issues and has a total market value of $82,500.

Molly is at present considering the addition of 50 shares of one of two common stock issues-X or Y. To assess the return and risk of each of these issues, she has gathered dividend income and share price data for both over each of the last 10 years (1996 through 2005). Molly's investigation of the outlook for these issues suggests that each will, on average, tend to behave in the future just as it has in the past. She therefore believes that the expected return can be estimated by finding the average holding period return (HPR) over the past 10 years for each of the stocks. The historical dividend income and stock price data collected by Molly are given in the attached accompanying table.

a. Determine the holding period return (HPR) for each stock in each of the preceding 10 years. Find the expected return for each stock, using the approach specified by Molly.

b. Use the HPRs and expected return calculated in question (a) to find both the standard deviation and the coefficient of variation of the HPRs for each stock over the 10-year period 1996 to 2005.

c. Use your findings to evaluate and discuss the return and risk associated with stocks X and Y. Which stock seems preferable? Explain.

d. Ignoring her existing portfolio, what recommendations would you give Molly with regard to stocks X and Y?

Purchase this Solution

Solution Summary

This solution is comprised of a detailed explanation to answer the request of the assignment of more than 300 words of text.

Solution Preview

Over the past 10 years, Molly O'Rourke has slowing built a diversified portfolio of common stock. Currently her portfolio includes 20 common stock issues and has a total market value of $82,500.

Molly is at present considering the addition of 50 shares of one of two common stock issues-X or Y. To assess the return and risk of each of these issues, she has gathered dividend income and share price data for both over each of the last 10 years (1996 through 2005). Molly's investigation of the outlook for these issues suggests that each will, on average, tend to behave in the future just as it has in the past. She therefore believes that the ...

Purchase this Solution


Free BrainMass Quizzes
MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Introduction to Finance

This quiz test introductory finance topics.

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.