Q2. Which stock is riskier based on the returns in the past 10 years? Use your financial calculator and type in the detailed calculator solutions.

Q3. You formed a portfolio when you invested in both stocks? What type of risk are you diversifying away? Use an example to illustrate this type of risk.

Reference:

Simple:

Stock A: (10% + 25% - 14% - 10% - 6% + 20 % +11% + 13% + 5% - 6%) / 10= 4.80%

Stock B: (-4% + 13% + 5% + 2% + 16% - 8% + 4% + 7% - 12% + 19%) / 10= 4.20%

Geometric:

Stock A: ((1 + 10 % ) * (1 + 25%) * (1 - 14%) * (1 - 10%) * (1 - 6%) * (1 + 20%) * (1 + 11%) * (1 + 13%) * (1 + 5%) * (1 - 6%))^(1/10) - 1 = 4.04%

Stock B: ((1 - 4%) * (1 + 13%) * (1 + 5%) * (1 + 2%) * (1 + 16%) * (1 - 8%) * (1 + 4%) * (1 + 7%) * (1 - 12%) * (1 + 19%))^(1/10) - 1= 3.75%

You invested in two stocks. The table presents the returns of both stocks in the past 10 years. Answer Q1 to Q5. -9 -7 -6 -4 -2 -1 Year Stock -10 10 % -8 -14 % 20 -3 13 25 % 11 -10 % -6% 5% -6% A % % o/% Stock 13 16 5% -4% 5% 2% | 16 -8% 4% 7% -12 | 19 19 olo 2% -8% 4% 7% -12 % olo olo Q1. What are the simple and geometric average returns of both stocks? (5 Points) Simple: Geometric