Consider the following 6 months of returns for 2 stocks and a portfolio of those 2stocks:

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%

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

1. 0.00176; 0.00176
2. 0.04195; 0.04195
3. 0.05985; 0.06953
4. 0.07985; 0.09767
5. None of the above

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

1. 5; 0
2. 1.5; 0.5
3. 1.5; 0.75
4. 2.5; 1
5. 2.5; 1.25

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

1. The portfolio is more risky than the two stocks. It has the same expected return but a standard deviation of 0, compared to standard deviations of 0.04195for both stocks.
2. 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.
3. 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 0.04195for both stocks.
4. 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 0.04195for both stocks.
5. The portfolio is less risky than the two stocks. It has the same expected return but a standard deviation of 1.25, compared to standard deviations of 0.04195for both stocks.