Consider a portfolio of two stocks whose statistical parameters are given below.

 Stock A: Annual mean return = 15%, annual standard deviation of return = 30%.

 Stock B: μ = 8%, σ= 15%.

 Correlation(A,B) = ρ = 0.3

An investor with a buy-and-hold strategy buys a portfolio composed of 60% A and 40% B and holds it for 20 years. Simulate the annual returns on the portfolio. A suggested template is given below.

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1 2 3 Mean 4 Sigma 5 Correlation 6 7 8 9 10 Mean 11 Sigma 12 13 14 15 56 A 16 Proportion of A B C D E F G INVESTING IN A PORTFOLIO OF TWO STOCKS StockA StockB Year 1 2 15% 30% 0.3 60% 8% 15% Summary of portfolio returns Theoretical Actual Simulated returns A B Normal deviates H