P5-13: Portfolio return and standard deviation. 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, 2010-2015, for each of these stocks are shown in the following table:

Expected return
Year	Stock L	Stock M
2010	14%	20%
2011	14	18
2012	16	16
2013	17	14
2014	17	12
2015	19	10

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

1. Calculate the expected value of portfolio returns, _p , over the 6-year period.
2. Calculate the standard deviation of expected portfolio returns, ?_rp, over the 6-year period.
3. How would you characterize the correlation of returns of the two stocks L and M?
4. Discuss any benefits of diversification achieved by Jamie through creation of the portfolio.