Suppose the IBM and Apple have experienced the following stock returns in the last 4 years:
|
YEAR |
IBM % |
Apple % |
|
2018 |
0.15 |
0.05 |
|
2019 |
0.6 |
0.09 |
|
2020 |
0.25 |
-0.14 |
|
2021 |
-0.25 |
0.2 |
Required:
- What are the stocks’ average returns, the variances, & the standard deviations? Discuss which investment was more volatile by giving reasons? (3 Marks)
- For the coming year of 2022 we have the below information, and if the probability of the state of economy of the recession is estimated by 50%, what are the Expected Return, Variance, and Standard Deviation of these 2 stocks? If the risk-free rate is 6%, what are the expected risk premium for each stock? Discuss investors prefer which company and why. (5 Marks)
|
State of Economy (SoE) |
IBM % |
Apple % |
|
Recession |
-16 |
24 |
|
Boom |
56 |
8 |
3. If an investor equally invests in these 2 stocks, what are the portfolio Expected Return, Variance, and Standard Deviation?
