Consider the following three stocks (U, V & W) with historical rates of returns. The figures are in percent.

Year	U	V	W
1	9.06	0.78	12.55
2	(5.14)	(0.87)	(5.90)
3	3.99	0.84	0.97
4	(2.86)	(2.06)	(4.42)
5	6.69	(2.30)	10.07
6	(4.17)	(2.16)	(7.21)
7	1.60	2.82	12.90
8	(2.74)	(7.02)	(3.68)
9	5.63	20.96	7.19
10	0.43	4.90	0.76

a) calculate average returns and standard deviations for each stock. (Use N as divisor)

b) calculate correlations and covariances between each pair of stocks.

c) Assume Mr. Jackson formed a portfolio (J) by combining the three stocks equally weighted. Calculate average return and standard deviation for portfolio J.

d) Assume Mr. Laxmikantham formed a portfolio (L) by combining the three stocks in the following weights: 20% in U, 50% in V and 30% in W. Calculate average return and standard deviation for portfolio L.

e) Which investor is more risk averse, Mr. Jackson or Mr. Laxmikantham? Show work.

3. Assume in a hypothetical economy the average variance of individual assets is 100 and average covariance between pairs of assets is 40.

a) what is the variance of a portfolio of 10 stocks?

b) what is the variance of a portfolio of 60 stocks?

c) How many stocks should be in a portfolio to have a variance of 50?