PLEASE SHOW ALL WORK Returns on two stocks, A and B in a five business day week
ID: 2635322 • Letter: P
Question
PLEASE SHOW ALL WORK
Returns on two stocks, A and B in a five business day week are as follows:
Returns
Day
Stock A
Stock B
01
20%
- 23 %
02
3 %
9%
03
- 18 %
7 %
04
11 %
31 %
05
7%
14 %
a) Calculate average returns, variances, and standard deviations for stock A and B.
b) Explain which stock is more risky referring to their variances and standard deviations.
c) Calculate one-day holding period return, two day holding period return, three-day holding period return, four day holding period return and five day holding period return for stock A and B and fill up the following table.
Returns (in %)
Day
Stock A
Stock B
1 - day Holding Period Return
3 - day Holding Period Return
5 - day Holding Period Return
Returns
Day
Stock A
Stock B
01
20%
- 23 %
02
3 %
9%
03
- 18 %
7 %
04
11 %
31 %
05
7%
14 %
Explanation / Answer
Day Stock A Stock B 1 20% -23% 2 3% 9% 3 -18% 7% 4 11% 31% 5 7% 14% Average Return of A=(20+3-18+11+7)/5= 4.6 Average Return of B=(-23+9+7+31+14)/5= 7.6 Variance of A=(20-4.6)^2+(3-4.6)^2+(-18-4.6)^2+(11-4.6)^2+(7-4.6)^2 797.2 Variance of B=(-23-7.6)^2+(9-7.6)^2+(7-7.6)^2+(31-7.6)^2+(14-7.6)^2 1527.2 SD of A=Square Root(797.2) 28.23 SD of B=Square Root(1527.2) 39.08 Returns (in %) Day Stock A Stock B 1 - day Holding Period Return 20 -23 3 - day Holding Period Return(Average of 3days) 1.67% -2.33% 5 - day Holding Period Return(Average of 5days) 4.60% 7.60%
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