The Allied Group has acquired Kramer Industries and is now
considering additional investments. They have determined that there
is a firm that is a good fit for their portfolio, the Kramer firm
of Montana. The firm was established in 1990 and has the following
historical returns:
Kramer Industries
Year Earnings
1990
(8% Loss)
1995
23%
2000
26%
2005
31%
2010
18%
What was the average return for the stock over the period of
1990 through 2010?
What was the standard deviation for the stock over this
period?
Assume that you currently have a portfolio that returns 19.5%.
If you add this stock to the current portfolio, what would happen
to the average return on the portfolio?
Should Allied invest in the stock? Justify your response.