Consider the following 6 months of returns for 2 stocks and a portfolio of those 2 stocks: Note: The portfolio is composed of 50% of Stock A and 50% of Stock B.

Jan (%) Feb (%) Mar (%) Apr (%) May (%) Jun (%) Stock A 3 6 -5 4 -1 5 Stock B 0 -3 8 -1 4 -2 Portfolio 1.5 1.5 1.5 1.5 1.5 1.5

a. What is the expected return and standard deviation of returns for each of the two stocks?

The expected return of Stock A is ---- %.

The expected return of Stock B is ------%.

The standard deviation of Stock A is _____

The standard deviation of Stock B is ----------

b. What is the expected return and standard deviation of returns for the portfolio?

The expected return of a portfolio composed of 50% Stock A and 50% Stock B is -----%

The standard deviation of a portfolio composed of 50% Stock A and 50% Stock B is ---------.

c. Is the portfolio more or less risky than the two stocks? Why?

A.

The portfolio is less risky than the two stocks. It has the same expected return but a standard deviation of 1, compared to standard deviations of 0.04195 for both stocks.

B.

The portfolio is riskier than the two stocks. It has the same expected return but a standard deviation of 0, compared to standard deviations of 0.04195 for both stocks.

C.

The portfolio is less risky than the two stocks. It has the same expected return but a standard deviation of 0.04195, compared to standard deviations of 0 for both stocks.

D.

The portfolio is less risky than the two stocks. It has the same expected return but a standard deviation of 0, compared to standard deviations of 0.04195 for both stocks.