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P5-13 (Portfolio return and standard deviation) Jamie Wong is considering building an investment portfolio containing two stocks, L and M

P5-13 (Portfolio return and standard deviation) Jamie Wong is considering building an investment portfolio containing two stocks, L and M
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FINANCE

P5-13 (Portfolio return and standard deviation) Jamie Wong is considering building an investment portfolio containing two stocks, L and M. Stock L will represent 40% of the dollar value of the portfolio, and stock M will account for the other 60%. The expected returns over the next 6 years, 2010–2015, for each of these stocks are shown in the following table:

a. Calculate the expected portfolio return, rp, for each of the 6 years.
b. Calculate the expected value of portfolio returns, , over the 6-year period.
c. Calculate the standard deviation of expected portfolio returns, rp, over the 6-year period.
d. How would you characterize the correlation of returns of the two stocks L and M?
e. Discuss any benefits of diversification achieved by Jamie through creation of the portfolio.

 

FILE: MS WORD

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