Mytab and Test.aspxtestld- 181497402 CSecure https//www.math FIN 5010 850 SA 201

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Mytab and Test.aspxtestld- 181497402 CSecure https//www.math FIN 5010 850 SA 2018 Test: TO5 This Question: 3 pts Anntwanette Henderson 6/10/18 10:46 Time Remaining: 00:56 38 Submt T 4 12 of 12 (8 complete) This Test: 20 pts poss Comides the folowing 6 months of returns for 2 stocks and a portfolilo of those 2 stocks Note The porntolo is a. What is the coxpected reurn and standard deviation of returns for each of the two stocks b. What is the expected etum and standard devation of retums for the portllo? c. is tha portolio more or less finky than the two stocks? Why? Data Table a. What is the expected return and standard deviation of vehuns for each of the two stocks? The expected seh n of Stock AD% (Rovndtoone decimal place ) The expected return at Stock B aD- (C?ck onte icon located on the top-right corner ofthe data table below in order to copy its contents into a spreadsheeot) Randtors decinal place ) Stock 4% -2% The standard deviation of Stock A Round to tive decimal places The standard diilen of Stock Bis? Rond'sive oeomal places) a ive decimal places )

Explanation / Answer

a. The expected return of stock A = (2+5-6+3-2+4)/6 = 1.0%

The expected return of stock B = (0-3+8-1+4-2)/6 = 1.0%

Standard deviation of Stock A = sum of [(x – expected return)^2/n-1]^0.5

Thus standard deviation of A = [88/(6-1)]^0.6 = 4.2%

Standard deviation of B:

Thus standard deviation of B = [88/(6-1)]^0.5 = 4.2%

b. Expected return of the portfolio = (1+1+1+1+1+1)/6 = 1%

standard deviation of portfolio =

Thus standard deviation = 0.0

c. The correct option is "c". Expected return of A = B = portfolio = 1%. But standard deviation of portfolio of 0%<standard deviation of both A and B of 4.195% (or 0.04195)

X mean (expected return) x - mean (x - mean)^2 2.00 1.00 1.00 1.00 5.00 4.00 16.00 (6.00) (7.00) 49.00 3.00 2.00 4.00 (2.00) (3.00) 9.00 4.00 3.00 9.00 Total 88.00

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