Solved: Rates of Return of Stocks Stocks may be

Chapter 3, Problem 27E

(choose chapter or problem)

Get Unlimited Answers
QUESTION:

Problem 27E

Rates of Return of Stocks Stocks may be categorized by industry. The data on the following page represent the 5−year rates of return (in percent) for a sample of consumer goods stocks and energy stocks ending November 10, 2010.

(a) Determine the mean and the median rate of return for each industry. Which sector has the higher mean rate of return? Which sector has the higher median rate of return?

(b) Determine the standard deviation for each industry. In finance, the standard deviation rate of return is called risk. Typically, an investor “pays” for a higher return by accepting more risk. Is the investor paying for higher returns in this instance? Do you think the higher returns are worth the cost?

CONSUMER GOODS STOCKS

9.83

10.11

11.06

9.32

7.5

8.66

13.7

15.04

17.24

16.83

6.22

8.86

11.79

9.64

−14.12

16.83

14.85

15.24

34.17

−8.32

0.52

1.46

11.26

6.79

10.66

ENERGY STOCKS

11.02

11.08

20.26

15.18

−0.13

4.13

1.61

1.58

16.14

−0.42

17.11

15.32

8.49

7.44

11.01

8.53

37.83

5.21

10.68

10.27

10.76

34.32

3.97

19.3

11.28

Questions & Answers

QUESTION:

Problem 27E

Rates of Return of Stocks Stocks may be categorized by industry. The data on the following page represent the 5−year rates of return (in percent) for a sample of consumer goods stocks and energy stocks ending November 10, 2010.

(a) Determine the mean and the median rate of return for each industry. Which sector has the higher mean rate of return? Which sector has the higher median rate of return?

(b) Determine the standard deviation for each industry. In finance, the standard deviation rate of return is called risk. Typically, an investor “pays” for a higher return by accepting more risk. Is the investor paying for higher returns in this instance? Do you think the higher returns are worth the cost?

CONSUMER GOODS STOCKS

9.83

10.11

11.06

9.32

7.5

8.66

13.7

15.04

17.24

16.83

6.22

8.86

11.79

9.64

−14.12

16.83

14.85

15.24

34.17

−8.32

0.52

1.46

11.26

6.79

10.66

ENERGY STOCKS

11.02

11.08

20.26

15.18

−0.13

4.13

1.61

1.58

16.14

−0.42

17.11

15.32

8.49

7.44

11.01

8.53

37.83

5.21

10.68

10.27

10.76

34.32

3.97

19.3

11.28

ANSWER:

Solution:

Step 1 of 3:

  The given data represents the 5-year rate of return for a sample of consumer goods stocks and energy stocks.

a). We have to determine the mean and the median rate of return for each industry.

   

  1. For ‘consumer goods’ industry the mean is calculated by

                      CONSUMER GOODS STOCKS

9.83

10.11

11.06

9.32

7.5

8.66

13.7

15.04

17.24

16.83

6.22

8.86

11.79

9.64

−14.12

16.83

14.85

15.24

34.17

−8.32

0.52

1.46

11.26

6.79

10.66

                  

                 

                   = 9.8056

The median for the ‘consumer goods’ industry.  

First, we arrange the data in ascending or descending order.

-14.12

-8.32

0.52

1.46

6.22

6.79

7.5

8.66

8.86

9.32

9.64

9.83

10.11

10.66

11.06

11.26

11.79

13.7

14.85

15.04

15.24

16.83

16.83

17.24

34.17

         

Then the middle most value is 10.11 (13th value).

Therefore, the median = 10.11.


 

Add to cart


Study Tools You Might Need

Not The Solution You Need? Search for Your Answer Here:

×

Login

Login or Sign up for access to all of our study tools and educational content!

Forgot password?
Register Now

×

Register

Sign up for access to all content on our site!

Or login if you already have an account

×

Reset password

If you have an active account we’ll send you an e-mail for password recovery

Or login if you have your password back