19. Diversification. Here are the returns on two stocks. (LO11-3)Digital CheeseExecutive FruitJanuary+15+7February-3+1March+5+4April+7+13May-4+2June+3+5July-2-3August-8-2a. Calculate the variance and standard deviation of each stock. Which stock is riskier if held onits own?b. Now calculate the returns in each month of a portfolio that invests an equal amount eachmonth in the two stocks.c. Is the variance more or less than halfway between the variance of the two individual stocks?

Answered: Diversification. Here are the returns…

Diversification. Here are the returns on two stocks. (LO11-3) Digital Cheese Executive Fruit January +15 +7 February -3 +1 March +5 +4 April +7 +13 May -4 +2 June +3 +5 July -2 -3 August -8 -2

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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Question

19. Diversification. Here are the returns on two stocks. (LO11-3)
Digital Cheese
Executive Fruit
January
+15
+7
February
-3
+1
March
+5
+4
April
+7
+13
May
-4
+2
June
+3
+5
July
-2
-3
August
-8
-2
a. Calculate the variance and standard deviation of each stock. Which stock is riskier if held on
its own?
b. Now calculate the returns in each month of a portfolio that invests an equal amount each
month in the two stocks.
c. Is the variance more or less than halfway between the variance of the two individual stocks?

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