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Jamie Wong is thinking of building an investment portfolio containing two stocks, L and M. Stock L will represent 80% of the dollar value of

Jamie Wong is thinking of building an investment portfolio containing two stocks, L and M. Stock L will represent 80% of the dollar value of the portfolio, and stock M will account for the other 20%. The historical returns over the next 6 years, 20132018, for each of these stocks are shown in the following table:

a.Calculate the actual 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.

a.The actual portfolio return for year 2013 is enter your response here%. (Round to two decimal places.)

Part 2

The actual portfolio return for year 2014 is enter your response here%. (Round to two decimal places.)

Part 3

The actual portfolio return for year 2015 is enter your response here%. (Round to two decimal places.)

Part 4

The actual portfolio return for year 2016 is enter your response here%. (Round to two decimal places.)

Part 5

The actual portfolio return for year 2017 is enter your response here%. (Round to two decimal places.)

Part 6

The actual portfolio return for year 2018 is enter your response here%. (Round to two decimal places.)

Part 7

b. The expected value of portfolio returns, rp, over the 6-year period is enter your response here%. (Round to two decimal places.)

Part 8

c.The standard deviation of expected portfolio returns, rp, over the 6-year period is enter your response here%. (Round to two decimal places.)

Part 9

d.How would you characterize the correlation of returns of the two stocks L and M?(Select the best answer below.)

A. The assets are negatively correlated.

B.The assets are positively correlated.

Part 10

e. Discuss any benefits of diversification achieved by Jamie through creation of the portfolio.(Select the best answer below.)

A.Combining these two positively correlated assets increases overall portfolio risk.

B. Combining these two negatively correlated assets increases overall portfolio risk.

C. Combining these two positively correlated assets reduces overall portfolio risk.

D. Combining these two negatively correlated assets reduces overall portfolio risk.

Year

Stock L

Stock M

2013

15%

20%

2014

16%

19%

2015

16%

18%

2016

18%

17%

2017

18%

16%

2018

19%

15%

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