Problem 26

Intro

The following table shows realized rates of return for two stocks.

	A	B	C
1	Year	Stock A	Stock B
2	1	5%	15%
3	2	-26%	-14%
4	3	-6%	-2%
5	4	5%	28%
6	5	14%	8%
7	6	6%	5%

Attempt 2/10 for 8 pts.

Part 1

What is the arithmetic average return for stock B?

Correct

	A	B	C	D
1	Year	Stock A	Stock B	Formula
2	1	5%	15%
3	2	-26%	-14%
4	3	-6%	-2%
5	4	5%	28%
6	5	14%	8%
7	6	6%	5%
8	Average	-0.003333	0.0667	=AVERAGE(C2:C7)

Attempt 2/10 for 10 pts.

Part 2

What is the variance for stock B?

Correct

	A	B	C	D
...
9	Variance	0.01987	0.02063	=VAR.S(C2:C7)

Attempt 3/10 for 8 pts.

Part 3

What is the covariance of returns?

Correct

	A	B	C	D
...
10	Covariance	0.01493		=COVARIANCE.S(B2:B7,C2:C7)

Attempt 2/10 for 8 pts.

Part 4

What is the mean return of a portfolio with 20% invested in stock A and the remainder in stock B?

Attempt 1/10 for 10 pts.

Part 5

What is the standard deviation of a portfolio with 20% invested in stock A and the remainder in stock B?

Attempt 1/10 for 10 pts.

Part 6

What is the mean return of a portfolio with 60% invested in stock A and the remainder in stock B?

Attempt 1/10 for 10 pts.

Part 7

What is the standard deviation of a portfolio with 60% invested in stock A and the remainder in stock B?