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

Year Stock A Stock B

2015 30% 5%

2016 -15 % 15%

2017 40% 2%

2018 25% 3%

2019 -5% 10%

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 want to buy only one stock,

which one will you select? Why?

3. Determine the correlation coefficient between returns of Stocks A and B. Can you reduce risk by creating a portfolio of the combination of both stocks? Why or why not?

4. If you invest 30% of money on Stock A, and another 70% 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?