ercentages need to be entered in decimal format, for instance 3% would be entered as .03.) Stock A and Stock B produced the returns shown on the spreadsheet during the past five years (Year -1 is one year ago, Year -2 is two years ago, and so forth). According to the spreadsheet, what is the average rate of return for each stock during the past five years? (Refer to Row 26 for average rate of return.) Based on the information in the spreadsheet, what is the coefficient of variation for each stock and for the portfolio? (Refer to Row 28 for the coefficient of variation.) If you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why? Consider a third stock, Stock C, that is available for inclusion in the portfolio. Stock C produced the returns shown in the table during the past five years (add this to column D under Stock C). What is the average return, standard deviation, and coefficient of variation for Stock C? (Refer to Row 27 for standard deviation.) Year Stock C's Return -1 32.00% -2 -11.75% -3 10.75% -4 32.25% -5 -6.75% Adjust the portfolio to consist of 33.33% Stock A, 33.33% Stock B, and 33.33% Stock C (row 31). How does this change affect the portfolio average rate of return, standard deviation, and coefficient of variation versus when 50% was invested in Stock A and 50% in Stock B? Make some other changes in the percentage of stocks in the portfolio (Row 31), making sure that the percentages add up to 100%. For example, you could enter 25% for Stock A, 25% for Stock B, and 50% for Stock C. Notice that the average rate of return for the portfolio remains constant for each scenario, but the standard deviation changes. Would you prefer to hold a portfolio consisting only of Stocks A and B or a portfolio that also includes Stock C? Why or why not?

Accounting Information Systems

10th Edition

ISBN:9781337619202

Author:Hall, James A.

Publisher:Hall, James A.

Chapter5: The Expenditure Cycle Part I: Purchases And Cash Disbursements Procedures

Section: Chapter Questions

Problem 3P

See similar textbooks

Related questions

Question

Percentages need to be entered in decimal format, for instance 3% would be entered as .03.)

Stock A and Stock B produced the returns shown on the spreadsheet during the past five years (Year -1 is one year ago, Year -2 is two years ago, and so forth). According to the spreadsheet, what is the average rate of return for each stock during the past five years? (Refer to Row 26 for average rate of return.)
Based on the information in the spreadsheet, what is the coefficient of variation for each stock and for the portfolio? (Refer to Row 28 for the coefficient of variation.) If you are a risk-averse investor, would you prefer to hold Stock A, Stock B, or the portfolio? Why?
Consider a third stock, Stock C, that is available for inclusion in the portfolio. Stock C produced the returns shown in the table during the past five years (add this to column D under Stock C). What is the average return, standard deviation, and coefficient of variation for Stock C? (Refer to Row 27 for standard deviation.)

Year Stock C's Return

-1 32.00%

-2 -11.75%

-3 10.75%

-4 32.25%

-5 -6.75%
Adjust the portfolio to consist of 33.33% Stock A, 33.33% Stock B, and 33.33% Stock C (row 31). How does this change affect the portfolio average rate of return, standard deviation, and coefficient of variation versus when 50% was invested in Stock A and 50% in Stock B?
Make some other changes in the percentage of stocks in the portfolio (Row 31), making sure that the percentages add up to 100%. For example, you could enter 25% for Stock A, 25% for Stock B, and 50% for Stock C. Notice that the average rate of return for the portfolio remains constant for each scenario, but the standard deviation changes. Would you prefer to hold a portfolio consisting only of Stocks A and B or a portfolio that also includes Stock C? Why or why not?

Year	Stock C's Return
-1	32.00%
-2	-11.75%
-3	10.75%
-4	32.25%
-5	-6.75%

C08
GRAPH
INSTRUCTIONS
Chapter 8 Spreadsheet-Related Problem (C08)
Realized Rates of Return
1. There are a number of instructions with which you should be familiar
to use these computerized models. These instructions appear in a
separate worksheet labeled INSTRUCTIONS. If you have not already
done so, you should read these instructions now. To read these
instructions, click on theworksheet labeled INSTRUCTIONS.
2. A graph which shows the return and standard deviation of each
stock and the portfolio will be displayed if you click the worsheet labeled
GRAPH at the bottom of this spreadsheet. To return to this worksheet,
click on the worksheet labeled C08 at the bottom of the GRAPH worksheet.
INPUT DATA:
KEY OUTPUT:
Year
Stock A
Stock B
Stock C
Portfolio
-1
-18.00%
-14.50%
-16.25%
-2
33.00%
21.80%
27.40%
-3
15.00%
30.50%
22.75%
-4
-0.50%
-7.60%
-4.05%
-5
27.00%
26.30%
26.65%
11.30%
11.30%
11.30%
20.79%
20.78%
20.13%
CV =
1.84
1.84
1.78
Percent in:
Stock A
Stock B
Stock C
Portfolio
50.00%
50.00%
0.00%
100.00%
Correlation coefficients, p
Stocks A & B
0.88
Stocks A & C
Stocks B & C

C08
GRAPH
INSTRUCTIONS
4
3
Sd Deviation
Return
2
Stock A
Stock B
Stock C
Portfolio

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.