Time Remaining: 0121 .31 Submilt Quiz Quiz: Chapter 8 This Quiz: 10 pts possita

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Time Remaining: 0121 .31 Submilt Quiz Quiz: Chapter 8 This Quiz: 10 pts possita This Question: 1 pt 6 o 10 (0 complete) Portioio return and standard deviation Persional Finance Problem Jamie Wong ts considening building an investment portiolie containing two ter 25% The espectedmmover te not 6 ynars, 2015-2020, tr each of hose stoos aesterntewns? Data Table a. Calculate the expected portoto retum, or each of the 6 years b. Calculate the expected value of portiolio returnes, over the 6-year period E. Calculate the standard dnvsiation of expectled porthiolo returns, over the 6-year peried d. How would you charaderice the comelation off relums of the two stocks L and M (Click on the icon located on the too-right corner off the data table below ider to benetits of divensfication achieved by Jame through creation of the portolio E?pectedreturn a. The expected portionmanfor year 2015?»% (Rourd th0der al places ) The expected portolo returm for year 2016 s% lound to two decimal places) The expected porttole netun tor year 2017Round to two decimal places The epeded portio reum year 2018 ?%?Round to two derul places) The expeched portalo return for year 2019 Round to two decimal places The epeded portollo refurn tor year 2020Round to wo dcimal places) Print Do The expected vaue of portio reansinovehe6pear penedes % (Rond to two dec. c. The standard devinon o, eoected ponoe neum«, over he 6-year penod is?% Rand to two decial places i aracerge the comeiation of returns of the two stocks L and M? (Select the best anoer below

Explanation / Answer

The expected return for an investment portfolio is the weighted average of the expected return of each of its securities.

Portfolio return = [Weight of stock L x Expected return on Stock L] + [Weight of stock M x Expected return on stock M]

2015

Portfolio Return = (.75)(.16) + (.25)(.21) = .12 + .0525 = .1725 or 17.25%

2016

Portfolio Retrun = (.75)(.18) + (.25)(.19) = .135 + .0475 = .1825 or 18.25%

2017

Porfolio Retrun = (.75)(.20) + (.25)(.17) = .15 + .0425 = .1925 or 19.25%

2018

Portfolio Return = (.75)(.21) + (.25)(.15) = .1575 + .0375 = .195 or 19.5%

2019

Portfolio Return = (.75)(.23) + (.25)(.13) = .1725 + .0325 = .205 or 20.5%

2020

Portfolio Return = (.75)(.25) + (.25)(.11) = .1875 + .0275 = .215 or 21.5%

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