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Consider the following annual returns of Estee Lauder and Lowes Companies: Estee Lauder Lowes Companies Portfolio Year 1 23.4% -6.0% Year 2 -26.0 16.1 Year

Consider the following annual returns of Estee Lauder and Lowes Companies:

Estee Lauder

Lowes Companies

Portfolio

Year 1

23.4%

-6.0%

Year 2

-26.0

16.1

Year 3

17.6

4.2

Year 4

49.9

48.0

Average Return

Standard Deviation

a. By using a spreadsheet or calculator compute each stocks average return and standard deviation. Which stock has the higher total risk?

b. Assume you held a portfolio made up of these two stocks. You invested 50% of your money in each stock. Calculate the portfolio expected return and standard deviation. Did portfolio risk decrease?

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