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1. Stocks A and B have the following historical retums: Yea Stock A returi Stock B retur 200 (24.25%) 55% 200 18.5% 26.73% 20038.67% 48.25%
1. Stocks A and B have the following historical retums: Yea Stock A returi Stock B retur 200 (24.25%) 55% 200 18.5% 26.73% 20038.67% 48.25% 200 14.33% (4.5%) 200: 39.13% 43.86% a) Calculate the average rate ofreturn for each stock during the period 2004 through 2008 Assume that someone held a portfolo consisting of 50% of Stock A and 50% of Stock What would the realized rate of retum on the portfolio have been in each year from 2004 through 2008? What would the average retum on the portfolio have been during that period? b) Calculate the standard deviation of retums for each stock and for the portfolo. c) Looking at the annual retums on the two stocks, would you guess that the correlation coefficient between the two stocks is closer to -6.8 or to -0.8? d) If more randomly selected stocks had been included in the portfolio, which of the following is the most accurate statement of what would have happened to p? Rwould have remained constant R would have been in the vicinity of 20% would have declined to zero fenough stocks had been included i. il
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