d. Calculate the coefficient of variation for each stock and for the portfolio. If you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why?

e. Assume a third stock, Stock C, is available for inclusion in the portfolio. Stock C produced the following returns during the 2008-2012 period:

Year Stock Cs Return

2008 32.00%

2009 11.75

2010 10.75

2011 32.25

2012 6.75

f. Calculate (or read from the computer screen) the average return, standard deviation, and coefficient of variation for Stock C.

g. Assume that the portfolio now consists of 33.33 percent Stock A, 33.33 percent Stock B, and 33.33 percent Stock C. How does this composition affect the portfolio return, standard deviation, and coefficient of variation versus when 50 percent was invested in A and in B?

a) Calculate the average rate of return for each stock. Fomulas used: B 1 Year Stock A Stock B 2 2004 -0.18 -0.145 3 2005 10.33 0.218 4 2006 0.15 0.305 s 2007 -0.005 -0.076 6 2008 0.27 0.263 Average rate of 7 return =AVERAGE(B2:B6) =AVERAGE(C2:C6) Results obtained: A 1 Year 2 2004 3 2005 4 2006 5 2007 6 2008 Average rate of 7 return B C Stock Stock B -18.00 - 14.50% 33.000 21.80% 15.00% 30.50% -0.50 -7.6096 27.00% 26,30% 11.30% 11.30% b) Calculate the realized rate of return for each year and the return on portfolio. Fomulas used: A D 9 Year Stock A Stock B Realized rate of return 10 2004 -0.18 -0.145 =(50%*B10)H(50%*C10) 11 2005 0.33 0.218 =(50%*B11)+(50%*C11) 12 2006 0.15 0.305 =(50%* B12 (50%*C12) 13 2007 -0.005 -0.076 =(50*B13)H(50*13) 14 2008 0.27 0.263 =(50%*B14)H(50%*C14) 15 Average return on portfolio =AVERAGE(D10:D14) Results obtained: 24 A B Realized rate 9 Year Stock A Stock B of return 10 2004 |-18.00 - 14.50 - 16.25 11 2005 33.00% 21.8096 27.40% 12 2006 15.00% 30.500 12.75% 13 2007 -0.50% -7.60% -4.05% 14 2008 27.000 26.30% 26.65% 15 Average return on portfolio 11.30% c) Calculate the standard deviation of each stock. Formulas used: a) Calculate the average rate of return for each stock. Fomulas used: B 1 Year Stock A Stock B 2 2004 -0.18 -0.145 3 2005 10.33 0.218 4 2006 0.15 0.305 s 2007 -0.005 -0.076 6 2008 0.27 0.263 Average rate of 7 return =AVERAGE(B2:B6) =AVERAGE(C2:C6) Results obtained: A 1 Year 2 2004 3 2005 4 2006 5 2007 6 2008 Average rate of 7 return B C Stock Stock B -18.00 - 14.50% 33.000 21.80% 15.00% 30.50% -0.50 -7.6096 27.00% 26,30% 11.30% 11.30% b) Calculate the realized rate of return for each year and the return on portfolio. Fomulas used: A D 9 Year Stock A Stock B Realized rate of return 10 2004 -0.18 -0.145 =(50%*B10)H(50%*C10) 11 2005 0.33 0.218 =(50%*B11)+(50%*C11) 12 2006 0.15 0.305 =(50%* B12 (50%*C12) 13 2007 -0.005 -0.076 =(50*B13)H(50*13) 14 2008 0.27 0.263 =(50%*B14)H(50%*C14) 15 Average return on portfolio =AVERAGE(D10:D14) Results obtained: 24 A B Realized rate 9 Year Stock A Stock B of return 10 2004 |-18.00 - 14.50 - 16.25 11 2005 33.00% 21.8096 27.40% 12 2006 15.00% 30.500 12.75% 13 2007 -0.50% -7.60% -4.05% 14 2008 27.000 26.30% 26.65% 15 Average return on portfolio 11.30% c) Calculate the standard deviation of each stock. Formulas used