The following table contains monthly returns for Cola Co. and Gas Co. for

2010

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(the returns are shown in decimal form, i.e., 0.035 is 3.5%). Using this table and the fact that Cola Co. and Gas Co. have a correlation of

0.0969,

calculate the volatility (standard deviation) of a portfolio that is

50%

invested in Cola Co. stock and

50%

invested in Gas Co. stock. Calculate the volatility by:

a.

Using the formula:

VarRp=w21SDR12+w22SDR2+2w1w2CorrR1,R2SDR1SDR2

b.

Calculating the monthly returns of the portfolio and computing its volatility directly.

c.

How do your results compare?