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	0.20		0.10
2	0.05		0.02
3	-0.05		-0.10
4	-0.01		0.04
5	0.12		0.04

1. 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?

   -Select-Stock TStock BItem 3 is more desirable because the arithmetic mean annual rate of return is -Select-higherlowerItem 4 .

2. 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.

   Stock T: %

   Stock B: %

   By this measure, which is the preferable stock?

   -Select-Stock TStock BItem 7 is the preferable stock.

3. 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.

   Stock T:

   Stock B:

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

   -Select-Stock TStock BItem 10 is the preferable stock.

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

   Stock T: %

   Stock B: %