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  • Financial Group

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    raphadaniel87
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    1) The document calculates average returns, standard deviations, and coefficients of variation for two stocks, Stock A and Stock B, over a 5 year period from 2018-2022. 2) Stock A had an average return of 8.4% and standard deviation of 17%, while Stock B had an average return of 16% and standard deviation of 13.34%. 3) A portfolio with 60% allocation to Stock A and 40% to Stock B was calculated to have an expected return of 11.44% and standard deviation of 13.67257108.

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    FINANCIAL GROUP

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    1) The document calculates average returns, standard deviations, and coefficients of variation for two stocks, Stock A and Stock B, over a 5 year period from 2018-2022. 2) Stock A had an average return of 8.4% and standard deviation of 17%, while Stock B had an average return of 16% and standard deviation of 13.34%. 3) A portfolio with 60% allocation to Stock A and 40% to Stock B was calculated to have an expected return of 11.44% and standard deviation of 13.67257108.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    7 views3 pages

    Financial Group

    Uploaded by

    raphadaniel87
    1) The document calculates average returns, standard deviations, and coefficients of variation for two stocks, Stock A and Stock B, over a 5 year period from 2018-2022. 2) Stock A had an average return of 8.4% and standard deviation of 17%, while Stock B had an average return of 16% and standard deviation of 13.34%. 3) A portfolio with 60% allocation to Stock A and 40% to Stock B was calculated to have an expected return of 11.44% and standard deviation of 13.67257108.

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    © All Rights Reserved
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    of 3

    Type equation here .

    2)

    A)
    YEAR STOCK A STOCK B
    2018 10% 15%
    2019 12% 8%
    2020 -5% 25%
    2021 18% 20%
    2022 7% 12%

    AVERAGE RETURNS OF STOCK A


    = ER/N
    =10+12+-5+18+7÷ 5
    =42÷5
    =8.4
    Average return for stock A is 8.4

    AVERAGE RETURN FOR STOCK B


    =ER/N
    =15+8+25+20+12÷5
    =80÷5
    =16
    Average return for stock B is 16

    STANDARD DEVIATION OF STOCK A


    YEARS R (R-R^)2
    2018 10% 10-8.4=2.56
    2019 12% 12-8.4=0.96
    2020 -5% -5-84=179.
    2021 18% 18-8.4=92.16
    2022 7% 7-8=1.96
    TOTAL= 289.2

    S.D√E(R-R^)2
    S.D√289.2
    S.D=17
    STANDARD DEVIATION FOR STOCK B
    YEAR R (R-R^)2
    2018 15% 15-16=1
    2019 8% 8-16=64
    2020 25% 23-16=81
    2021 20% 20-16=16
    2022 12% 12-16=16
    TOTAL =178

    S.D=√E(R-R^)2
    S.D=√178
    S.D=13.34

    B)
    COEFFICIENT OF VARIATION
    Co-efficient of variation =standard deviation ÷ expected return
    S.D/ER

    So stock A
    Coefficient variation of stock A
    S.D÷ER= 17÷8.4=2.02

    For stock B
    Coefficient of variation for stock B
    S.D÷ER=16÷13.34=1.19

    C) EXPECTED RETURN PORTFOLIO


    ERP=WyRx+WyRy
    Wx=60%=0.6
    Wy=40%=0.4
    Rx=8.4
    Ry=16
    ERP=(0.6)×(8.4)+(0.4)×(16)
    ERP=5.04+6.4
    ERP=11.44
    STANDARD DEVIATION PORTFOLIO

    S.D=√dx2Wx2+dy2Wy2+2WxWydxdyQxy
    S.D=√(17)2(0.6)2+(13.34)2×(0.4)+2×0.6×0.4×17×13.34×0.5
    S.D=√(289)×(0.36)+(177.95)×(0.16)+54.4272
    S.D=√(104.04)+(28.472)+54.4272
    S.D=√186.9392
    S.D=13.67257108

    Standard deviation of the portfolio is 13.67257108

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