Realized rates of return Stocks A and B have the following historical returns: C

Question

Realized rates of return Stocks A and B have the following historical returns: Calculate the average rate of return for stock A during the period 2006 through 2010. Round your answer to two decimal places. Calculate the average rate of return for stock B during the period 2006 through 2010. Round your answer to two decimal places. Assume that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would the realized rate of return on the portfolio have been in each year? Round your answers to two decimal places.

Explanation / Answer

a.
avg rate of return of A = [(1+ -20.4%)*(1+32%)*(1+10.25%)*(1+ -1.5%)*(1+33.25%)]^(1/4) - 1
= 11.04%


avg rate of return of A = [(1+ -14.4%)*(1+25.5%)*(1+39.3%)*(1+ -12.7%)*(1+15.9%)]^(1/4) - 1
= 10.93%

b.
for portfolio with 50:50 of A:B, rate of return = (0.5 * 11.04%) + (0.5 * 10.93%)
= 10.99%

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