The stock of Jones Trucking is expected to return 15 percent annually with a standard deviation of 5 percent. The stock of Bush Steel Mills is expected to return 19 percent annually with a standard deviation of 11 percent. The correlation between the returns from the two securities has been estimated to be +0.5. The beta of the Jones stock is 1.1, and the beta of the Bush stock is 1.4. The risk-free rate of return is expected to be 6 percent, and the expected return on the market portfolio is 15 percent. The current dividend for Jones is $4. The current dividend for Bush is $6.

a) What is the expected return from a portfolio containing the two securities if 50 percent of your wealth is invested in Jones and 50 percent is invested in Bush? Round your answer to one decimal place.

b)What is the expected standard deviation of the portfolio of the two stocks? Round your answer to two decimal places.

c) Which stock is the better buy in the current market? Round your answers to one decimal place.

Required return (jones)

required return (bush)

The Jones/Bush stock is the better buy because the expected return is lower/higher than the required return.