Homework: HW5 Save Score: 0 of 16 pts 40f 10 (4 complete) Hw Score: 29.5%, 29.5

Question

Homework: HW5 Save Score: 0 of 16 pts 40f 10 (4 complete) Hw Score: 29.5%, 29.5 of 100 pts P8-13 (similar to) Question Help * Portfolio return and standard deviation Personal Finance Problem Jamie Wong is considering building an nvestment portfolio containing two stocks, L and M. Stock L will represent 35% of the dollar value of the portfolio, and stock M will account for the other 65%. The expected returns over the next 6 years, 2015-2020, for each of these stocks are shown in the following table: a. Calculate the expected portfolio return, lp, for each of the 6 years. b. Calculatethe expected value of portfolio returns, rp, over the 6-year period. c. Calculate the standard deviation of expected portfolio returns, '' 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. Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) a. The expected portfolio return for year 2015 is %. (Round to two decimal places.) Expected return Year 2015 2016 2017 2018 2019 2020 Stock L 14% 15% 16% 16% 17% 19% Stock M 23% 21% 19% 17% 15% 13% PrintDone

Explanation / Answer

As per the question, I am answering sub question a, which is expected portfolio return for year 2015,

Weights of both stocks in the portfolio

WL = 35 %, WM = 65%

Expected invidual returns in year 2015,

RL = 14%, RM = 23%

Expected portfolio return = WL* RL + WM * RM = 35%*14% + 65%*23% = 19.85%

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