DO NOT ANSWER IN EXCEL Stocks A and B have the following historical returns: Year rA rB 2015 -18% 56% 2016 44% 8% 2017 -22% -4% 2018 22% 24% 2019 34% -24% A. Calculate the average rate of return for...


DO NOT ANSWER IN EXCEL<br>Stocks A and B have the following historical returns:<br>Year<br>rA<br>rB<br>2015<br>-18%<br>56%<br>2016<br>44%<br>8%<br>2017<br>-22%<br>-4%<br>2018<br>22%<br>24%<br>2019<br>34%<br>-24%<br>A. Calculate the average rate of return for each stock during the 5-year period. Assume<br>that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B.<br>What would have been the realized rate of return on the portfolio in each year? What<br>would have been the average return on the portfolio for the 5-year period?<br>B. Now calculate the standard deviation of returns for each stock and for the portfolio.<br>C. Looking at the annual returns data on the two stocks, would you guess that the<br>correlation coefficient between returns on the two stocks is closer to 0.8 or to 20.8?<br>D. If you added more stocks at random to the portfolio, which of the following is the<br>most accurate statement of what would happen to o,?<br>I.<br>O, would remain constant.<br>II.<br>O, would decline to somewhere in the vicinity of 20%.<br>II.<br>O, would decline to zero if enough stocks were included.<br>

Extracted text: DO NOT ANSWER IN EXCEL Stocks A and B have the following historical returns: Year rA rB 2015 -18% 56% 2016 44% 8% 2017 -22% -4% 2018 22% 24% 2019 34% -24% A. Calculate the average rate of return for each stock during the 5-year period. 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 for the 5-year period? B. Now calculate the standard deviation of returns for each stock and for the portfolio. C. Looking at the annual returns data on the two stocks, would you guess that the correlation coefficient between returns on the two stocks is closer to 0.8 or to 20.8? D. If you added more stocks at random to the portfolio, which of the following is the most accurate statement of what would happen to o,? I. O, would remain constant. II. O, would decline to somewhere in the vicinity of 20%. II. O, would decline to zero if enough stocks were included.

Jun 04, 2022
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