Share
Explore BrainMass

Average return, standard deviation and coefficient of variation

Stocks A and B have the following historical returns:

Year rA rB
2006 -22.40% -13.30%
2007 20.50 19.70
2008 19.25 22.10
2009 -3.00 -10.90
2010 22.75 28.20

a.Calculate the average rate of return for each stock during the 5-year period. Round your answers to two decimal places.

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? Round your answers to two decimal places.

c.Calculate the standard deviation of returns for each stock and for the portfolio. Round your answers to two decimal places.

d.Calculate the coefficient of variation for each stock and for the portfolio. Round your answers to two decimal places.

Solution Preview

Please refer attached file for formulas and better clarity of tables.

Year Stock A Stock B
ra rb
2006 -22.40% -13.30%
2007 20.50% 19.70%
2008 19.25% 22.10%
2009 -3.00% -10.90%
2010 22.75% 28.20%
Sum 37.10% 45.80%

a.Calculate the average rate of return for each stock during the 5-year period. Round your answers to two decimal places.
Average Return for Stock A=7.42%

Average Return for Stock B=9.16%

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? Round your answers to two decimal places.

Year ...

Solution Summary

This solution describes the steps to calculate average return, standard deviation and coefficient of variation in the given case.

$2.19