Jamie Wong is thinking of 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 historical returns over the last $6$ years, $2013$

$2018,$ for each of these stocks are shown in the following table.

Expected Return

Year Stock L Stock M

$201314\%20\%$

$20141418$

$20151616$

$20161714$

$20171712$

$20181910$

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

b$.$ Calculate the average return for each stock and for the portfolio over the $6-$year

period.

c$.$ Calculate the standard deviation of returns for each asset and for the portfolio.

How does the portfolio standard deviation compare to the standard deviations of

the individual assets?

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.