Calculating various statistical measures
Stocks M and W have the following historical returns:
Year Stock M Stock W
2007 -19% -13.50%
2008 33% 22.75%
2009 16% 34.50%
2010 -0.30% -7.83%
2011 27% 23.30%
during the 5-year period.
b. Assume that you are planning to hold a portfolio
consisting of 30% of Stock M and 70% of Stock W. What is the realized rate of
return on the portfolio in each year?
c. What is the average return on the portfolio for the 5
year period?
d. What is the standard deviation of returns for each stock
and for the portfolio?
e. Calculate the coefficient of variation for each stock and
for the portfolio?
f. If you are a risk averse investor, assuming these are
your only choices, would you prefer to hold Stock M, Stock W, or the portfolio?
Why?
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