Problem 3:

The annual returns for five different stocks are presented below. Determine the expected return and risk for a period of five years for each of the shares. (10 points)

Yields

Year WMT ADRE MSFT GOOG BIIB

20x0 12.0% 7.5% 12.3% 13.1% 8.5%

20x1 9.3% 4.3% 12.0% 16.2% 9.1%

20x2 8.2% 8.1% 11.9% 15.7% 9.0%

20x3 10.3% 9.2% 11.8% 18.2% 8.7%

20x4 11.5% 6.1% 12.0% 19.3% 8.8%

Problem 4:

to. Calculate the coefficient of variation (CV) for each of the actions in problem 3. (5 points)

b. Explain which investment would be preferred by a risk averse investor and which would be preferred by a risk lover investor. (5 points)

Problem 5:

to. Using the data provided in Problem 3, determine the return and risk for a portfolio made up of the following three stocks if you want to distribute your investment as follows: 20% in ADRE; 65% in MSFT and 15% in GOOG. (10 points)

b. How would the portfolio be affected if you distributed your investment as follows: 30% in ADRE; 25% in MSFT and 45% in GOOG? (10 points)

c. Which of the two portfolios would a risk seeking investor prefer and why? (5 points)