Question Tag: Average Returns

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AFM – May 2016 – L3 – Q1a – Discounted cash flow techniques, Sources of finance and cost of capital

Calculate the average rate of return for two stocks and analyze portfolio return using different methods.

a) Crown Limited has a mixture of investment portfolios, stock A and Stock B. The historical performance return on the stocks are as follows:

Year Stock A Return (%) Stock B Return (%)
2010 -10 -3
2011 18 21
2012 39 44
2013 14 4
2014 33 28

Required:
i) Calculate the average rate of return for each stock during the period of 2010 to 2014. (3 marks)
ii) Calculate the average return on the portfolio during the period if Crown Limited held 50% each of stock A and stock B. (3 marks)
iii) Calculate the return of the portfolio using the standard deviation approach. (4 marks)

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AFM – May 2016 – L3 – Q1a – Discounted cash flow techniques, Sources of finance and cost of capital

Calculate the average rate of return for two stocks and analyze portfolio return using different methods.

a) Crown Limited has a mixture of investment portfolios, stock A and Stock B. The historical performance return on the stocks are as follows:

Year Stock A Return (%) Stock B Return (%)
2010 -10 -3
2011 18 21
2012 39 44
2013 14 4
2014 33 28

Required:
i) Calculate the average rate of return for each stock during the period of 2010 to 2014. (3 marks)
ii) Calculate the average return on the portfolio during the period if Crown Limited held 50% each of stock A and stock B. (3 marks)
iii) Calculate the return of the portfolio using the standard deviation approach. (4 marks)

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