Basic Measure, Policy Statement, and Securities Markets

Basic measure, Policy Statement, and Securities Markets

Strayer University

Corporate Investment Analysis

Dr. Gary Bliss

October 17, 2010

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

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a. Compute the arithmetic mean annual rate of return for each stock. Which stock is most desirable by this measure?

b. Compute the standard deviation of the annual return for each stock. (use Chapter 1 Appendix if necessary). By this measure, which stock is preferable?

c. Compute the coefficient of variation for each stock (use Chapter 1 Appendix if necessary). By this relative measure of risk, which stock is preferable?

d. Compute the geometric mean return for each stock. Discuss the difference between the arithmetic mean return and the geometric mean return for each stock. Discuss the differences in the mean returns relative to the standard deviation of the return for each stock.

The best way to complete the calculations for each question is to load the above information into an excel spreadsheet and complete all calculations using excel formulas. If you need help, let me know. When you turn this portion of the assignment in, it is okay to simply attach the excel workbook.

Answer:

A Arithmetic Mean on Excel Sheet - Stock A is most desirable since gives higher rate of return based on the average given

B Standard Deviation on Excel Sheet - Stock A is most desirable by the measurement since it offered a lower Standard Deviation

C Coefficient of Variation on Excel Sheet - Stock A is desirable since it offers low value of Coefficient of variation

D Geometric Mean on Excel Sheet - The difference between the arithmetic mean return and the geometric mean return. As compare the both means Geometric mean is less than the Arithmetic mean for both stocks. For stock A the difference between Arithmetic mean and Geometric means is 0.13 and for Stock B is 0.76....