The table below shows annual returns on the pharmaceutical leader Merck and chip maker Advanced Micro Devices. The last column of the table shows the annual return that a portfolio invested 50% in Merck and 50% in AMD would have earned each year. The portfolio’s return is simply a weighted average of the returns of Merck and AMD. An example portfolio return calculation for 1994 is given at the top of the table.
a. Plot a graph similar to Figure 6.7 showing the returns on Merck and AMD each year.
b. Fill in the blanks by calculating the 50-50 portfolio’s return each year from 1995-2003 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, AMD, and the portfolio and comment on what you find.

  • CreatedMay 13, 2015
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