1. Calculate the average rate of return for each stock during the period 2015 through 2019.

a) The average return for Stock A= %

b) The average return for Stock B = %

Note: enter your answers with 2 decimal places

2. Assume that someone held a portfolio consisting of 50% of Stock A and 50% of Stock B. What would the realized rate of return on the portfolio have been in each year from 2015 through 2019? What would the average return on the portfolio have been during that period?

Realized rates:

2015= %

2016 =

2017=

2018=

2019=

Average rate of return on the portfolio = %

Note: enter your answers with 2 decimal places

3. Calculate the standard deviation of returns for each stock and for the portfolio.

a) Standard deviation of returns for stock A = %

b) Standard deviation of returns for stock B = %

c) Standard deviation of returns for portfolio = %

4. Assume the risk-free rate during this time was 3.5%. What are the Sharpe ratios for Stocks A and B and the portfolio over this time period using their average returns?

a) Sharpe ratio for Stock A =

b) Sharpe ratio for Stock B =

c) Sharpe ratio for Portfolio AB =

Note: enter your answers with 4 decimal places

5. Looking at the annual returns on the two stocks, would you guess that the correlation coefficient between the two stocks is closer to +0.8 or to 0.8?

a) Closer to +0.8

b) Closer to -0.8

6. If more randomly selected stocks had been included in the portfolio, which of the following is the most accurate statement of what would have happened to the standard deviation of the portfolio?

a) the standard deviation would have remained constant.

b) the standard deviation would have been in the vicinity of 20%.

c) the standard deviation would have declined to zero if enough stocks had been included.

Stocks A and B have the following historical returns