Jamal Hamza is considering building an investment portfolio containing two stocks, L and M. Stock L will

Question:

Jamal Hamza is considering building an investment portfolio containing two stocks, L and M. Stock L will represent 40 percent of the dollar value of the portfolio, and stock M will account for the other 60 percent. The expected returns over the next 6 years, 2013–2018, for each of these stocks are shown in the following table.

a. Calculate the expected portfolio return, r_p, for each of the 6 years.

b. Calculate the expected value of portfolio returns, ∙r_p, over the 6-year period.

c. Calculate the standard deviation of expected portfolio returns, s_rp, over the 6-year period.

d. How would you characterize the correlation of returns of the two stocks L and M?

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

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...