Month Price Dividend HPR Total Return Index

0 71.44 0.00 100

1 74.88 0.00 4.82% 104.82
2 78.44 0.00 4.75% 109.80
3 71.84 0.35 -7.97% 101.05
4 70.50 0.00 -1.87% 99.16
5 62.60 0.00 -11.21% 88.05
6 60.05 0.35 -3.51% 84.96
7 64.24 0.00 6.98% 90.89
8 63.80 0.00 -0.68% 90.26
9 71.02 0.38 11.91% 101.02
10 74.15 0.00 4.41% 105.47
11 72.79 0.00 -1.83% 103.53
12 73.78 0.38 1.88% 105.48
13 77.46 0.00 4.99% 110.74
14 79.13 0.00 2.16% 113.13
15 81.68 0.38 3.70% 117.32
16 84.79 0.00 3.81% 121.79
17 90.09 0.00 6.25% 129.40
18 90.26 0.38 0.61% 130.19
19 89.55 0.00 -0.79% 129.17
20 89.30 0.69 0.49% 129.80
21 88.99 0.41 0.11% 129.95
22 88.65 0.00 -0.38% 129.45
23 89.38 0.00 0.82% 130.52
24 88.70 0.41 -0.30% 130.12
Arithmetic Mean 1.21%
Std. Deviation 4.81%
Geometric Mean 1.10%
Value of $10,000 $13,012.11
 Returns
Probability Investment A Investment B Investment C
10% -22% -13% -10%
20% -2% 1% 2%
40% 20% 15% 12%
20% 35% 29% 20%
10% 50% 43% 38%
E(R) 17.40% 15.00% 12.00%
Std Dev 20.04% 15.34% 12.20%
CV 1.1515 1.0224 1.0165

Investment C offers the best risk/return tradeoff. You can see

this by looking at the CV's for each investment. Remember, this
measure risk per unit of return, so lower is better.
Beginning NAV $12.00
Ending NAV $12.75
Cash Distributions $0.50
Holding Period (months) 6

HPR 10.42%
Annualized HPR 21.92%
Purchase Price $100.00
Expected Price $120.00
Cash Dividends $5.00
Holding Period (months) 12

HPR 25.00%
Annualized HPR 25.00%
Dividend Yield 5.00% Note that the dividend yield and capital
Capital Gains Yield 20.00% gains yield sum to the total return.
 Year NAV Distributions Annual HPRs Total Return Index
1992 13.38 100
1993 14.06 1.15 13.68% 113.68
1994 12.27 0.84 -6.76% 106.00
1995 14.62 0.71 24.94% 132.43
1996 15.63 1.02 13.89% 150.82
1997 16.65 1.26 14.59% 172.82
1998 15.98 1.4 4.38% 180.40
1999 20.01 1.19 32.67% 239.32
2000 23.08 0.61 18.39% 283.34
2001 26.93 2.8 28.81% 364.98
2002 28.93 0.49 9.25% 398.72
Total HPR 201.94%
HPR with Reinvestment 298.72%
Arithmetic Mean HPR 15.38%
Geometric Mean HPR (HPY) 14.83%
Avg Annual Return 1994-1998 9.68% 9.68%
Avg Annual Return 1998-2002 21.93% 21.93%
Std Deviation of Annual Returns 11.71%
CV of Annual Returns 0.7612
Total (Nominal) Return 18.50%
Inflation Rate 2.50%
Real Return 15.61%
Purchase Price in Foreign Currency 1,000
Total Cash Flow in Foreign Currency 60
Sales Price in Foreign Currency 1,025
Beginning Exchange Rate (US $ per unit
of Foreign Currency) 0.65
Ending Exchange Rate (US $ per unit of
Foreign Currency) 0.67

HPR in Foreign Currency 8.50%

HPR in US Dollars 11.84%
Calculated Standard Deviation 12.50%
Periods per Year 12.00
Annualized Standard Deviation 43.30%
 Year American Express IBM Sears Portfolio
1 25.0% 13.0% 34.3% 24.10%
2 34.3% -19.4% -2.3% 4.20%
3 -38.6% 25.7% -29.1% -14.00%
4 3.4% -17.6% 57.5% 14.43%
5 25.0% -38.0% 25.4% 4.13%
6 28.1% 15.3% 53.0% 32.13%
7 11.1% 31.9% -10.0% 11.00%
8 42.5% 25.7% 54.5% 40.90%
9 39.2% 67.6% 17.7% 41.50%
10 59.9% 39.0% 0.1% 33.00%
HPR 501.38% 160.47% 360.54% 415.39%
HPY 19.65% 10.05% 16.50% 17.82%
Std Deviation 25.47% 31.47% 30.05% 18.24%
CV 1.1078 2.1975 1.4944 0.9529
American Express offered the best risk/return tradeoff,
next was Sears, and worst was IBM.

The portfolio offers a better risk/return tradeoff than any

of the individual stocks (look at the CV).