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Problem 7. [9 pts]. Stock A and B have the following returns: (Show your calculations) Stock A 0.10 0.17 0.05 -0.05 -0.08 0.09 0.10 0.14 Stock B -0.03 0.10 0.05 0.15 0.12 -0.05 0.07 0.05 4 6 a- What are the expected returns of the two stocks? b- What are the standard deviations of the two stocks? c- If their correlation is-0.49, what is the expected return and standard deviation of a portfolio of 35% stock A and 65% stock B?

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Stock A Stock B 110.00% -3.00% 217.00% 10.00% 35.00% 5.00% 4-5.00% 15.00% 5-8.00% 12.00% 69.00% -5.00% 710.00% 7.00% 814.00% 5.00% 4 10 12 131 Expected return 14 SD 6.50% 8.80% 5.75% 6.94% 16 Weight 17 SD of portfolio 18 35% 65% 0.49 4.03%Stock A 0.1 0.17 0.05 0.05 0.08 0.09 0.1 0.14 Stock B 0.03 0.1 0.05 0.15 0.12 0.05 0.07 0.05 6 3 10 7 11 8 12 13 Expected returr 14 SD -AVERAGE(B4:B11) -STDEV.S(B4:B11) -AVERAGE(C4:C11) -STDEV.S(C4:C11) 16 Weight 17 SD of portfolio 18 19 20 21 0.35 0.65 0.49 -SQRT(B16 B16 B14 B14+C16 C16*C14 C14+2 B16*C16 B14*C14 D16)

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