The table below presents the year-end prices for the shares of Ford and PPG from 1989 to 2001:

1.a. Calculate the following statistics for these two shares: average return, variance of returns, standard deviation of returns, covariance of returns and correlation coefficient.
1.b. If you invested in a portfolio composed of 50% Ford and 50% PPG, what would be the portfolio expected return? the standard deviation?
1.c. Comment on the following statement: “Ford has lower returns and higher standard deviation of returns than PPG. Therefore any rational investor would invest in PPG only and would leave Ford out of her portfolio.”

Transcribed Image Text:

A B PRICES FOR FORD AND PPG STOCK C 1 Ford PPG 10 12 14 15 23456789012345 Date stock price stock price 31-Dec-89 11.813 14.024 31-Dec-90 7.210 17.229 31-Dec-91 7.617 19.138 31-Dec-92 11.612 25.721 31-Dec-93 17.469 30.518 31-Dec-94 15.100 30.736 31-Dec-95 15.642 38.980 31-Dec-96 17.472 49.007 11 31-Dec-97 26.310 51.040 31-Dec-98 31.807 53.172 13 31-Dec-99 28.895 58.626 31-Dec-00 22.470 44.867 31-Dec-01 15.720 51.720