Question

Stocks A and B have the following returns: Stock A 0.08 0.06 0.15 -0.02 0.07 Stock B 0.06 0.01 0.05 0.03 -0.04 a. What are the expected returns of the two stocks? b. What are the standard deviations of the returns of the two stocks? c. If their correlation is 0.46, what is the expected return and standard deviation of a portfolio of 68% stock A and 32% stock B? a. What are the expected returns of the two stocks? The expected return for stock A is . (Round to three decimal places.)

Answer 1

X V A Year 1 80 2 fc =B79-$B$85 B с Deviation from mean 0.080 0.012 0.060 -0.008 0.150 0.082 -0.020 -0.088 0.070 0.002 0.340 0.068 (0.34/5) 0.003670 (0.15/(5-1)) 0.061 Square of deviation 0.000 0.000 0.007 0.008 0.000 0.015 4 84 Sum 85 Expected return 86 87 Variance 88 Standard deviation 89 (root of variance) 90 Year Deviation from mean 0.060 0.038 0.010 -0.012 0.050 0.028 0.030 0.008 -0.040 -0.062 0.110 Square of deviation 0.001 0.000 0.001 0.000 91 92 93 - 2 94 95 96 97 Sum 98 Expected return 99 100 Variance 101 Standard deviation 102 (root of variance) 0.004 0.006 0.022 (0.11/5) 0.001570 0.040 (0.2331/(5-1))

Year 2 Expected return 3 Variance 4 Standard deviation 5 Correlation 6 Assets weight B Stock A 0.068 0.00367 0.061 0.46 68% Stock B 0.022 0.00157 0.040 32% 8 Expected return 9 Standard deviation 0.053 0.053 +B2*B6+C2*C6 0.048 +(8612*B3+C612*C3+2*36*C6*85*34*C4)(1/2)

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