# Question

Stock A and Stock B have the following historical returns:

a. Calculate the average rate of return for each stock during the period 2011–2015.

Assume that someone held a portfolio consisting of 50 percent Stock A and 50 percent Stock B. What would have been the realized rate of return on the portfolio in each year from 2011 through 2015? What would have been the average return on the portfolio during this period?

b. Calculate the standard deviation of returns for each stock and for the port- folio. Use Equation 11-4.

c. Looking at the annual returns data on the two stocks, would you guess that the correlation coefficient between returns on the two stocks is closer to 0.9 or to 0.9? Explain youranswer.

a. Calculate the average rate of return for each stock during the period 2011–2015.

Assume that someone held a portfolio consisting of 50 percent Stock A and 50 percent Stock B. What would have been the realized rate of return on the portfolio in each year from 2011 through 2015? What would have been the average return on the portfolio during this period?

b. Calculate the standard deviation of returns for each stock and for the port- folio. Use Equation 11-4.

c. Looking at the annual returns data on the two stocks, would you guess that the correlation coefficient between returns on the two stocks is closer to 0.9 or to 0.9? Explain youranswer.

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