Jamie Wong is considering building an investment portfolio containing two stocks, L and M. Stock L will represent 50% of the dollar value of the portfolio, and stock M will account for the other

50%. The expected returns over the next 6 years, 20152020, for each of these stocks are shown in the following table:

	Expected return
Year	Stock L		Stock M
2015	14%		23%
2016	14%		23%
2017	14%		23%
2018	14%		23%
2019	15%		23%
2020	17%		23%

a.Calculate the expected portfolio return, r Subscript prp, for each of the 6 years.

b. Calculate the expected value of portfolio returns, r overbar Subscript prp, over the 6-year period.

c.Calculate the standard deviation of expected portfolio returns, sigma Subscript r Sub Subscript prp,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.