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    Average and standard deviation of returns in the given case

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    I need some help with this assignment, I am not sure how to answer the questions based on the scenario provided: The Allied Group has acquired Kramer Industries and is now considering additional investments. They have determined that there is a firm that is a good fit for their portfolio, the Kramer firm of Montana. The firm was established in 1990 and has the following historical returns:
    Kramer Industries

    Year Earnings

    1990 (8% Loss)

    1995 23%

    2000 26%

    2005 31%

    2010 18%

    Questions: Address all of the following questions in a brief but thorough manner.

    1. What was the average return for the stock over the period of 1990 through 2010?
    2. What was the standard deviation for the stock over this period?
    3. Assume that you currently have a portfolio that returns 19.5%. If you add this stock to the current portfolio, what would happen to the average return on the portfolio?
    4. Should Allied invest in the stock? Justify your response.

    Thank you for your help

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    Solution Summary

    The solution depicts the steps to estimate the average and standard deviation of returns in the given case.