Ahmed Zahran is building a new portfolio that consists of two stocks, A and B. Stock A will represent 40% of his portfolio while stock B will represent the remaining 60%. The expected returns for 10 years, 2016 to 2025, are shown in the following table:

a. Calculate the expected portfolio return, r_p, for each of the 10 years.

b. Calculate the average expected portfolio return over the 10-year period.

c. Calculate the standard deviation of the portfolio over the 10-year period.

d. How would you characterize the correlation of returns between the two stocks?

e. Discuss any benefits of diversification achieved by Ahmed through the creation of this portfolio.

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Year Expected Return (Stock A) Expected Return (Stock B) 2016 14% 25% 2017 14% 23% 2018 16% 20% 2019 17% 18% 2020 17% 17% 2021 19% 16% 2022 21% 14% 2023 22% 12% 2024 22% 10% 2025 24% 8%