Suppose the IBM and Apple have experienced the following stock returns in the last 4 years: YEAR IBM % Apple % 2018 0.15 0.05 2019
Suppose the IBM and Apple have experienced the following stock returns in the last 4 years:
| YEAR | IBM % | Apple % |
| 2018 | 0.15 | 0.05 |
| 2019 | 0.6 | 0.09 |
| 2020 | 0.25 | -0.14 |
| 2021 | -0.25 | 0.2 |
Required:
- What are the stocks average returns, the variances, & the standard deviations? Discuss which investment was more volatile by giving reasons? (3 Marks)
- For the coming year of 2022 we have the below information, and if the probability of the state of economy of the recession is estimated by 50%, what are the Expected Return, Variance, and Standard Deviation of these 2 stocks? If the risk-free rate is 6%, what are the expected risk premium for each stock? Discuss investors prefer which company and why. (5 Marks)
| State of Economy (SoE) | IBM % | Apple % |
| Recession | -16 | 24 |
| Boom | 56 | 8 |
3. If an investor equally invests in these 2 stocks, what are the portfolio Expected Return, Variance, and Standard Deviation?
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Authors: Mathias Schmidt
1st Edition
3319459694, 978-3319459691
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