Question

Historical Realized Rates of Return

Stocks A and B have the following historical returns:

Year
2012	-19.60%	-14.00%
2013	20.00	30.00
2014	12.00	35.30
2015	-1.00	-10.20
2016	31.50	1.80

Calculate the average rate of return for each stock during the 5-year period. Round your answers to two decimal places.

Stock A	%
Stock B	%

Assume that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would have been the realized rate of return on the portfolio in each year? What would have been the average return on the portfolio during this period? Round your answers to two decimal places.

Year	Portfolio
2012	%
2013	%
2014	%
2015	%
2016	%
Average return	%

Calculate the standard deviation of returns for each stock and for the portfolio. Round your answers to two decimal places.

	rA	rB	Portfolio
Std. Dev.	%	%	%

Answer 1

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ans 1
	Year	A	B
	2012	-19.60%	-14.00%
	2013	20%	30%
	2014	12%	35.30%
	2015	-1%	-10.20%
	2016	31.50%	1.80%
i	total	42.90%	42.90%
ii	Number of year	5	5
iii=i/ii	Average return	8.58%	8.58%
ans 2
		i	ii	iii=i*.5+ii*.5
	Year	A	B	Portfolio
	2012	-19.60%	-14.00%	-16.80%
	2013	20%	30%	25.00%
	2014	12%	35.30%	23.65%
	2015	-1%	-10.20%	-5.60%
	2016	31.50%	1.80%	16.65%
	Total			42.90%
	average return =42.90%/5			8.58%
ans 3	computation of SD
	Year	A	B	Portfolio		(A-8.58%)^2	(B-8.58%)^2	(portfolio-8.58%)^2
	2012	-19.60%	-14.00%	-16.80%		7.94%	5.10%	6.44%
	2013	20%	30%	25.00%		1.30%	4.59%	2.70%
	2014	12%	35.30%	23.65%		0.12%	7.14%	2.27%
	2015	-1%	-10.20%	-5.60%		0.92%	3.53%	2.01%
	2016	31.50%	1.80%	16.65%		5.25%	0.46%	0.65%
i	total					15.53%	20.81%	14.07%
ii	Number of year -5 =4					4	4	4
iii	Variance =i/ii					3.88%	5.20%	3.52%
iv	SD= iii^0.5					19.71%	22.81%	18.76%