Calculate the actual portfolio return, rp, for each of the 6 years. b. Calculate the expected value of portfolio returns, rp, over the 6-year period. c. Calculate the standard deviation of expected portfolio returns, σrp, over the 6-year period.
Calculate the actual portfolio return, rp, for each of the 6 years. b. Calculate the expected value of portfolio returns, rp, over the 6-year period. c. Calculate the standard deviation of expected portfolio returns, σrp, over the 6-year period.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Jamie Wong is thinking of building an investment portfolio containing two stocks, L and M. Stock L will represent 50% of the dollar value of the portfolio, and stock M will account for the other 50%.
The historical returns over the next 6 years, 2013−2018,for each of these stocks are shown in the following table: (see attached table)
a. Calculate the actual portfolio return, rp, for each of the 6 years.
b. Calculate the expected value of portfolio returns, rp, over the 6-year period.
c. Calculate the standard deviation of expected portfolio returns, σrp, over the 6-year period.
Transcribed Image Text:### Annual Expected Return for Stock L and Stock M (2013-2018)
The following table presents the annual expected returns for two stocks, Stock L and Stock M, over a six-year period from 2013 to 2018.
| **Year** | **Stock L** | **Stock M** |
|----------|--------------|-------------|
| 2013 | 15% | 22% |
| 2014 | 17% | 21% |
| 2015 | 19% | 20% |
| 2016 | 21% | 19% |
| 2017 | 22% | 18% |
| 2018 | 24% | 17% |
### Analysis
- **Stock L**: Shows a consistent annual increase in expected returns from 15% in 2013 to 24% in 2018. This indicates a progressive improvement in performance.
- **Stock M**: Exhibits a decreasing trend in expected returns, starting at 22% in 2013 and dropping to 17% in 2018.
### Visual Representation
If this table were to be represented in a line graph:
- The x-axis would represent the years (2013 to 2018).
- The y-axis would represent the expected return percentages.
- Two lines would be plotted: one for Stock L and another for Stock M.
- The line for Stock L would show an upward trajectory.
- The line for Stock M would display a downward slope.
This data can be useful for understanding historical performance trends and making informed investment decisions.
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