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2) Suppose you have $ 10,000 available for investment. Your stock broker has suggested that you invest in either stock A or stock B. You

2) Suppose you have $ 10,000 available for investment.
Your stock broker has suggested that you invest in either stock A or stock B.
You are concerned about the riskiness of the stocks.
During your investigation, you find the historical returns on these stocks:
a) Calculate the average annual returns and standard deviation for these stocks.
b) Suppose you decide to invest in both the stocks in the ratio of 50:50.
Calculate the portfolio return each year and the average expected return.
Calculate the portfolio return and standard deviation for the entire period.
c) Likewise, what would be the expected return & Standard Devation
if the portfolio weights are 25:75.
d) Likewise, what would be the expected return & Standard Devation
if the portfolio weights are 75:25.
e) Which one would you choose from among the 5 options:
stock A, stock B or portfolio 50:50, portfolio 75:25 or portfolio 25:75?
Year Stock A Returns Stock B Returns Portfolio 50:50 Portfolio 25:75 Portfolio 75:25
2007 8.40% 7.60% ? ? ?
2008 -2.10% 21.90% ? ? ?
2009 19.60% -3.40% ? ? ?
2010 7.50% 17.40% ? ? ?
2011 11.80% 12.70% ? ? ?
Expected Return ? ? ? ? ?
Standard Deviation ? ? ? ? ?

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