III. The holding Period Rate of Return (HPR) of stocks A and B for the past five years are:

Year Stock A Stock B

2015 3% 40%

2016 5 % - 5%

2017 1 % 50%

2018 10% -10%

2019 6% 35%

1. Base on the information provided above, calculate the expected rate of return and

standard deviation for each stock.

2. Calculate coefficient of variation of each stock. If you only want to buy one stock,

which one will you select? Why?

3. Determine the correlation coefficient of returns of Stocks A and B. Can you reduce

risk by creating a portfolio of the combination of both stocks? Why or why not?

If you invest 80% of money on Stock A, and another 20% on Stock B, calculate expected rate of return and standard deviation of this portfolio. Is this portfolio better than individual stock A and B? Why?