Problem 1-05

During the past five years, you owned two stocks that had the following annual rates of return:

Year	Stock T		Stock B
1	0.17		0.09
2	0.08		0.04
3	-0.13		-0.09
4	-0.03		0.04
5	0.10		0.06

a. Compute the arithmetic mean annual rate of return for each stock. Round your answers to one decimal place.

Stock T: %

Stock B: %

Which stock is most desirable by this measure?

_______ is more desirable because the arithmetic mean annual rate of return is _______. (higher/lower)

b. Compute the standard deviation of the annual rate of return for each stock. (Use Chapter 1 Appendix if necessary.) Do not round intermediate calculations. Round your answers to three decimal places. Answer with the population standard deviation.

Stock T: %

Stock B: %

By this measure, which is the preferable stock?

Stock ____ is the preferable stock.

c. Compute the coefficient of variation for each stock. (Use the Chapter 1 Appendix if necessary.) Do not round intermediate calculations. Round your answers to four decimal places. Use the population standard deviation in your computation.

Stock T:

Stock B:

By this relative measure of risk, which stock is preferable?

Stock ___ is the preferable stock.

d. Compute the geometric mean rate of return for each stock. Round your answers to three decimal places.

Stock T: %

Stock B: %