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Rate of return

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Stocks A and B have the following historical returns:

Year Stock A's Returns, Stock B's Returns
2001 -18.00% -14.50%
2002 33.00 21.80
2003 15.00 30.50
2004 0.50 (7.60)
2005 27.00 26.30

a. Calculate the average rate of return for each stock during the 5-year period.

b. Assume that someone held a portfolio consisting of 50% of Stock A and 50%
of Stock B. What would have been the realized rate of return on the portfolio
in each year? What would have been the average return on the portfolio during
this period?
Year Stock A Stock B Portfolio Return
2001 -18.00% -14.50% -16.25%
2002 33.00 21.80
2003 15.00 30.50
2004 0.50 (7.60)
2005 27.00 26.30

Average rate of return -3.485%

c. Calculate the standard deviation of returns for each stock and for the portfolio.
1507.20% 1696.23% #DIV/0!

d. Calculate the coefficient of variation for each stock and for the portfolio.

e. If you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or
the portfolio? Why?

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The solution explains how to calculate average rate of return, realized rate of return, standard deviation and coefficient of variation

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