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Portfolio return and standard deviation Personal Finance Problem Jamie Wong is thinking of building an investment portfolio containing two stocks, L and M. Stock L
Portfolio return and standard deviation Personal Finance Problem Jamie Wong is thinking of building an investment portfolio containing two stocks, L and M. Stock L will represent 35% of the dollar value of the portfolio, and stock M will account for the other 65%. 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 a. The actual portfolio return for year 2013 is \%. (Round to two decimal places.) \begin{tabular}{ccc} \hline & \multicolumn{2}{c}{ Expected return } \\ \cline { 2 - 3 } Year & Stock L & Stock M \\ \hline 2013 & 16% & 20% \\ 2014 & 18% & 18% \\ 2015 & 20% & 16% \\ 2016 & 20% & 14% \\ 2017 & 20% & 12% \\ 2018 & 22% & 10% \\ \hline \end{tabular}
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