Stocks A and B have the following historical returns:

Year

Stock A's Returns, rA Stock B's Returns, rB

2007 (18.00%) (14.50%)

2008 33.00 21.80

2009 15.00 30.50

2010 (0.50) (7.60)

2011 27.00 26.30

(i) Calculate the average return for each stock during the period 2007 to 2011.

(ii) Assume that someone held a portfolio consisting of 50% A and 50% B. What would have been their realized rate of return on the portfolio in each year from 2002 to 2006? What would have been the average return on the portfolio during this period?

(iii) Calculate the standard deviation of returns for each stock and for the portfolio.

(iv) Calculate the coefficient of variation for each stock and for the portfolio.

(v) Assuming you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why?