Jamie Wong is thinking of building an investment portfolio containing two stocks, L and M. Stock L will represent 65% of the dollar value of the portfolio, and stock M will account for the other

35%. The historical returns over the next 6 years, 20132018, for each of these stocks are shown in the following table:

EXPECTED RETURN

Year. Stock L. Stock M

2013. 14%. 20%

2014. 16%. 18%

2015. 18%. 16%

2016. 18%. 14%

2017. 20%. 12%

2018. 20%. 10%

.

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.