SHOW ALL WORK!!!!! Returns on two stocks, A and B in a five business day week ar
ID: 2635378 • Letter: S
Question
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 %
1. Calculate average returns, variances, and standard deviations for stock A and B.
2. Explain which stock is more risky referring to their variances and standard deviations.
3. 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
1
Stock A
Day
Return (X) in %
X-Mean
Square of (X-Mean)
1
20
15.4
237.16
2
3
-1.6
2.56
3
-18
-22.6
510.76
4
11
6.4
40.96
5
7
2.4
5.76
Summation
23
0
797.2
Mean= Summation of Returns / No: of days= 23 / 5= 4.6%
Variance= Sum of Square of (X-Mean)/ (No: of days -1) = 797.2/ (5-1) = 797.2 / 4= 199.3
Standard Deviation= Square Root of Variance= 14.12%
Stock B
Day
Return (Y) in %
Y-Mean
Square of (Y-Mean)
1
-23
-30.6
936.36
2
9
1.4
1.96
3
7
-0.6
0.36
4
31
23.4
547.56
5
14
6.4
40.96
Summation
38
0
1527.2
Mean= Summation of Returns / No: of days= 38 / 5= 7.6%
Variance= Sum of Square of (Y-Mean)/ (No: of days -1) = 1527.2/ (5-1) = 1527.2 / 4= 381.8
Standard Deviation= Square Root of Variance= 19.54%
2
Stock B is more risky as the standard deviation is more than that of Stock A
3
Holding Period can be defined as the return earned on a stock for a stated period.
The average return for Stock A is 4.6% and Stock B is 7.6%
Hence the Holding Period Return shall be:
Holding Period
Stock A
Stock B
1 Day
4.6%
7.6%
2 Day
4.6% * 2= 9.2%
7.6% * 2= 15.2%
3 Day
4.6% * 3= 13.8%
7.6% * 3= 22.8%
4 Day
4.6% * 4= 18.4%
7.6% * 4= 30.4%
5 Day
4.6% * 5 = 23%
7.6% * 5= 38%
Day
Return (X) in %
X-Mean
Square of (X-Mean)
1
20
15.4
237.16
2
3
-1.6
2.56
3
-18
-22.6
510.76
4
11
6.4
40.96
5
7
2.4
5.76
Summation
23
0
797.2
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