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    You Are Considering An Investment in The Stock Market and

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    Let's Talk With Hassan
    You are considering investing in two stocks, XYZ and ABC. Performance data over the past 5 years shows XYZ had average returns of 13.5% and a standard deviation of 3.2%, while ABC had average returns of 12.9% and a standard deviation of 4.5%. A portfolio with a 50-50 allocation between the two stocks had average returns of 13.2% and a lower standard deviation than either stock individually, suggesting it would provide good diversification.

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    You Are Considering An Investment in The Stock Market and

    Uploaded by

    Let's Talk With Hassan
    32 views1 page
    You are considering investing in two stocks, XYZ and ABC. Performance data over the past 5 years shows XYZ had average returns of 13.5% and a standard deviation of 3.2%, while ABC had average returns of 12.9% and a standard deviation of 4.5%. A portfolio with a 50-50 allocation between the two stocks had average returns of 13.2% and a lower standard deviation than either stock individually, suggesting it would provide good diversification.

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    You Are Considering an Investment in the Stock Market And

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    You are considering investing in two stocks, XYZ and ABC. Performance data over the past 5 years shows XYZ had average returns of 13.5% and a standard deviation of 3.2%, while ABC had average returns of 12.9% and a standard deviation of 4.5%. A portfolio with a 50-50 allocation between the two stocks had average returns of 13.2% and a lower standard deviation than either stock individually, suggesting it would provide good diversification.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    32 views1 page

    You Are Considering An Investment in The Stock Market and

    Uploaded by

    Let's Talk With Hassan
    You are considering investing in two stocks, XYZ and ABC. Performance data over the past 5 years shows XYZ had average returns of 13.5% and a standard deviation of 3.2%, while ABC had average returns of 12.9% and a standard deviation of 4.5%. A portfolio with a 50-50 allocation between the two stocks had average returns of 13.2% and a lower standard deviation than either stock individually, suggesting it would provide good diversification.

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    © All Rights Reserved
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    You are considering an investment in the stock market and

    #3523
    You are considering an investment in the stock market and have identified two potential stocks
    (XYZ and ABC) to purchase. The historical returns for the past five years are shown in the table
    below.Year XYZ Returns ABC Returns2007................................9.50%.........................................
    ...............22.50%2008...............................13.50%.......................................................10.80%200
    9...............................18.13%.......................................................17.10%2010................................
    8.10%........................................................11.70%2011...............................11.70%.......................
    ..................................7.20%a. Calculate the average return and standard deviation of returns for
    each stock over the past five years. Which stock would you prefer to own? Would everyone
    make the same choice?b. Calculate the correlation coefficient between the two stocks. Does it
    appear that a portfolio consisting of XYZ and ABC would provide good diversification?c.
    Calculate the annual returns that would have been achieved had you owned a portfolio
    consisting of 50% in XYZ and 50% in ABC over the past five years.d. Calculate the average
    return and standard deviation of returns for the portfolio. How does the portfolio compare with
    the individual stocks? Would you prefer the portfolio to owning either of the stocks alone?e.
    Create a chart that shows how the standard deviation of the portfolio's returns changes as the
    weight of XYZ changes.f. Using the Solver, what is the minimum standard deviation that could
    be achieved by combining these stocks into a portfolio? What are the exact weights of the
    stocks that result in this minimum standard deviation?View Solution:
    You are considering an investment in the stock market and

    ANSWER
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