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Assume that Adams holds just one stock, Novo Coporation (NYSE: N), which he thinks has very little risk. Judy agrees that the stock is relatively
Assume that Adams holds just one stock, Novo Coporation (NYSE: N), which he thinks has very little risk. Judy agrees that the stock is relatively safe, but she wants to demonstrate that Adam's risk would be even lower if he could be more diversified. Judy obtains the following returns data for Gemini (NYSE: G). Both stocks have had less variability than most other stocks over the past 5 years. Judy suggests Adams have a portfolio consisting 60% in N and the remainder in G. a. Calculate the average rate of return for each stock during the past five years ( 2 marks) b. Calculate the standard deviation of returns for each stock ( 2 marks) c. If your Adams had held the portfolio, by how much would his stand-alone risk have been reduced based on the standard deviation? ( 6 marks)
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