The last ten observations of the holding period returns (HPR) of stock XYZ are given in the following table:

Period XYZ

1. -3%

2. 2%

3. 6%

4 -5%

5 -10%

6 10%

7 3%

8. 7%

9 0%

10. -3%

Using Excel the expected (average) return was 0.70% and the standard deviation 6.11%.

(a) Assume a second stock exists in the market with an expected return of 1% and a standard deviation of 6%. What is the standard deviation of a portfolio build from the two stock and which invests 30% in stock XYZ (the correlation is 50%)? Would you recommend this portfolio to an investor.

(b) Assume a second stock exists in the market with an expected return of 1% and a standard deviation of 6%. What is the standard deviation of a portfolio build from the two stock and which invests 30% in stock XYZ (the correlation is 50%)? Would you recommend this portfolio to an investor?