P4.26 From her Investment Analysis class, Laura has been given an assignment to evaluate several secu- ritics on a risk-return tradeoff basis. The specific securities to be researched are International Business Machines, Helmerich & Payne, Inc., and the S&P 500 Index. The respective ticker sym- bols for the stocks are IBM and HP. She finds the following (fictional) data on the securities in question. It is as follows: Year 2005 2006 2007 Priceje $49.38 $91.63 $112.25 2008 $112.00 2009 2010 $107.89 $ 92.68 Dividend BM PriceP $ 0.40 $25.56 $ 0.44 $ 0.48 $ 0.52 $ 0.56 $ 0.64 $17.56 $ 23.50 $ 47.81 $ 30.40 $ 27.93 DividendP $ 0.28 $ 0.28 $ 0.28 $ 0.30 $ 0.30 $ 0.32 Values&P 980.3 1,279.6 1,394.6 1,366.0 1,130.2 1,121.8 Note: The value of the S&P 500 Index includes dividends.

Questions Part One

a. Use the data that Laura has found on the three securities and create a spreadsheet to calcu- late the holding period return (HPR) for each year and the average return over a five-year period. Specifically, the HPR will be based upon five unique periods of one year (i.e., 2005 to 2006, 2006 to 2007, 2007 to 2008, 2008 to 2009, 2009 to 2010). Use the following formula: HPR [Inc (V - Vo)I/Vo Where Inc income during period V, ending investment value V beginning investment value Part Two Create a spreadsheet similar to the spreadsheet for Table 4.9 (on page 138), which can be viewed at www.myfinancelab.com, in order to evaluate the risk-return tradeoff.

b. Calculate the standard deviations of the returns for IBM, HP, and the S&P 500 Index.

c. What industries are associated with IBM and HP?

d. Based on your answer in part c and your results for the average return and the standard deviation, what conclusions can Laura make about investing in either IBM or HP?