**How does the relationship between**

**the average return and the historical volatility of individual**

**stocks differ from the relationship between the average return and**

**the historical volatility of large, well-diversified**

**portfolios?**

Download the

spreadsheet from MyFinanceLab that

contains historical monthly prices and

dividends (paid at the end of the month) for Ford Motor Company

stock (Ticker: F) from August 1994 to August 1998. Calculate the

realized return over this period, expressing your answer in percent

per month.

Ford Motor Co (F)

11. Using the same data as in Problem

10, compute the

a. Average monthly return over this

period.

b. Monthly volatility (or standard

deviation) over this period.

Ford Motor Co (F)

12. Explain the difference between the

average return you calculated in Problem 11(a) and the realized

return you calculated in Problem 10. Are both numbers useful? If

so, explain why.

13.

Compute the

95% confidence

interval of

the

estimate

of the

average

monthly

return you calculated in

Problem 11(a).

14. How does the relationship between

the average return and the historical volatility of individual

stocks differ from the relationship between the average return and

the historical volatility of large, well-diversified

portfolios?

15.

Download the spreadsheet from MyFinanceLab containing the data for

Figure 10.1.

a. Compute the average

return for each of the assets

from 1929 to 1940 (The

Great

Depression).

b. Compute the variance and standard

deviation for each of the assets from 1929 to 1940.

c. Which asset was

riskiest during the Great Depression?

How does that fit with your

intuition?