Jamie Wong is considering building an investment portfolio containing two stocks, L and M. Stock L will represent 40% of the dollar value of the portfolio, and stock M will account for the other 60%. The expected returns over the next 6 years, 20152020, for each of these stocks are shown in the following table:

Year Stock L Stock M

2015 14% 20% 2016 14% 18% 5017 15% 16% 2018 15% 14% 2019 16% 12%

2020 16% 10%

a.Calculate the expected portfolio return,rp, for each of the 6 years.

b. Calculate the expected value of portfolio returns,rp, over the 6-year period.

c.Calculate the standard deviation of expected portfolio returns, rp, over the 6-year period.

d.How would you characterize the correlation of returns of the two stocks L and M?

e. Discuss any benefits of diversification achieved by Jamie through creation of the portfolio.