Question

Mar Jun Jan 3% 1% 5% Stock A Stock B Apr 4% 0% 5% 9% - 1% Portfolio 2% 2% 2% 2%

Consider the following 6 months of returns for 2 stocks and a portfolio of those 2​ stocks:

The

portfolio is composed of​ 50% of Stock A and​ 50% of Stock B.  

a. What is the expected return and standard deviation of returns for each of the two​ stocks?

b. What is the expected return and standard deviation of returns for the​ portfolio?

c. Is the portfolio more or less risky than the two​ stocks? Why?

this is the entire question that i screen shot nothing is missing expect part c that i already know the answer to.

Answer 1

(c)

Page A- B-B (A-A) B-B A (A- Ā) (B-B) - 1 -4 - 16 .- 59 7| 0 15 4 -7 2 -3 16 7 49 4 9 -2 IO 3 16 49 4 9 88 - 49 - 4 - 9 - 9 - 88 3 88 - 8 8 n Ta T4 - @ Expected return of A=Ã = SRA= 12 = 2 % Expected return of B = 12 = 2 % S.D of A = VE (AA)2 = 188 = 3.83 % S.D of B = √88= 3.83 % Erfected steer of beittilio = Sumerates of setung in - 6 2 + 2 + 2+2 +2+2 2 % = s.D of portfolio = I was whorey Covevenue = CA 5.0 of porttalie - X WA AWAX Covoiance - 88 = -14.67 6 fo.sx 14.67 to 3 x 14.67 - 2x0 sxos X14.67

The portfolio is less risky than the two stocks .It has same expected return but standard deviation of 0,compared to standard deviation of 0.0383 for both stocks

(In the options,standard deviation of two stocks is wrong ,I have calculate the current one.)