Using the data in the​ table, consider a portfolio that maintains a 35% weight on stock A and a 65% weight on stock B. a. What is the return each year of this​ portfolio? (2010-2015) b. Based on your results from part ​(a​), compute the average return and volatility of the portfolio. c. Show that​ (i) the average return of the portfolio is equal to the​ (weighted) average of the average returns of the two​ stocks, and​ (ii) the volatility of the portfolio equals the same result as from the calculation in Eq. 11.9. d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks.

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
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Using the data in the​ table, consider a portfolio that maintains a 35% weight on stock A and a 65% weight on stock B.
a. What is the return each year of this​ portfolio? (2010-2015)
b. Based on your results from part ​(a​), compute the average return and volatility of the portfolio.
c. Show that​ (i) the average return of the portfolio is equal to the​ (weighted) average of the average returns of the two​ stocks, and​ (ii) the volatility of the portfolio equals the same result as from the calculation in Eq. 11.9.
d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks.
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Year
2010
2011
2012
2013
2014
2015
Stock A
- 2%
11%
8%
- 7%
2%
9%
Stock B
24%
23%
26%
- 1%
- 13%
17%
Transcribed Image Text:Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 2010 2011 2012 2013 2014 2015 Stock A - 2% 11% 8% - 7% 2% 9% Stock B 24% 23% 26% - 1% - 13% 17%
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