Final answer:
To analyze a stock or portfolio performance from 1998 through 2002, calculate average returns, realized rate of return for a mixed portfolio, standard deviation, and coefficient of variation to assess risk and return, which assists a risk-averse investor in decision-making.
Step-by-step explanation:
To calculate the average rate of return for each stock from 1998 to 2002, you would sum up the annual returns for each stock and then divide by the number of years. For a portfolio consisting of 50% Stock A and 50% Stock B, calculate the realized rate of return for each year by taking the weighted average of both stocks' returns for that year. The average return on the portfolio over this period is similarly calculated by finding the mean of these annual portfolio returns.
To calculate the standard deviation of returns, use the formula which identifies the square root of the variance (average of squared deviations from the mean). Once these standard deviations are determined, you can then find the coefficient of variation by dividing the standard deviation by the mean return for each stock and the portfolio. This measures risk per unit of return.
As a risk-averse investor, preference might vary based on the balance between risk and return. One might look at the standard deviation (as a measure of risk) and the average return (as a measure of reward) to decide. In general, diversification, as seen in the portfolio, often offers a more favorable balance of risk and return.