Question
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
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. Use Equation 6.9. 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 - 0.8? d. If you added more stocks at random to the portfolio,
(1) 0, would remain constant. (2) 0, would decline to somewhere in the vicinity of 20%. (3) 0, would decline to zero if enough stocks were included.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started