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In: Finance
Jamie Wong is considering building an investment portfolio containing two stocks, L and M. Stock L...
Jamie Wong is considering building an investment portfolio containing two stocks, L and M. Stock L will represent 20 % of the dollar value of the portfolio, and stock M will account for the other 80 %. The expected returns over the next 6 years, 2015minus 2020, for each of these stocks are shown in the following table:
Expected return
Year Stock L Stock M
2015 14 % 25 %
2016 15 % 24 %
2017 16 % 23 %
2018 17 % 22 %
2019 17 % 21 %
2020 18 % 20 %
. a. Calculate the expected portfolio return, rp , for each of the 6 years. b. Calculate the expected value of portfolio returns, r p , over the 6-year period. c. Calculate the standard deviation of expected portfolio returns, sigma Subscript rp, over the 6-year period. d. How would you characterize the correlation of returns of the two stocks L and M? e. Discuss any benefits of diversification achieved by Jamie through creation of the portfolio.
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jeff jeffy answered 1 year agoRelated Solutions
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