The table below shows annual returns for Merck and one of its major competitors, Eli Lilly. The final column shows the annual return on a portfolio invested 50% in Lilly and 50% in Merck. The portfolio’s return is simply a weighted average of the returns of the stocks in the portfolio as shown in the example calculation at the top of the table.
a. Plot a graph similar to Figure showing the returns on Merck and Lilly each year.
b. Fill in the blanks by calculating the 50-50 portfolio’s return each year from year 2 to year 10, and then plot this on the graph you created for part (a). How does the portfolio return compare to the returns of the individual stocks in the portfolio?
c. Calculate the standard deviation of Merck, Lilly, and the portfolio and comment on what you find.

  • CreatedMarch 26, 2015
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