Jamie Wong is thinking of 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 historical returns over the next 6 years, 2013−2018, for each of these stocks are shown in the following table: ( see attached table ) 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. d. How would you characterize the correlation of returns of the two stocks L and M? e. Discuss any benefits of
Jamie Wong is thinking of 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 historical returns over the next 6 years, 2013−2018, for each of these stocks are shown in the following table: ( see attached table ) 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. d. How would you characterize the correlation of returns of the two stocks L and M? e. Discuss any benefits of
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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Jamie Wong is thinking of 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 historical returns over the next 6 years, 2013−2018, for each of these stocks are shown in the following table: ( see attached table )
of the dollar value of the portfolio, and stock M will account for the other 80%. The historical returns over the next 6 years, 2013−2018, for each of these stocks are shown in the following table: ( see attached table )
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.
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.
Transcribed Image Text:Year
2013
2014
2015
2016
2017
2018
Expected return
Stock L
16%
18%
19%
20%
20%
22%
Stock M
22%
21%
20%
19%
18%
17%
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