# Jamie Wong is considering building an investment portfolio containing two stocks, L and M. Stock L will represent 40% of

## Question:

Jamie Wong is considering building an investment portfolio containing two stocks, L and M. Stock L will represent 40% of the dollar value of the portfolio, and stock M will account for the other 60%. The expected returns over the next 6 years, 2015–2020, 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, σ_{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 Jamie through creation of the portfolio.

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**Related Book For**

## Principles Of Managerial Finance

**ISBN:** 9781292018201

14th Global Edition

**Authors:** Lawrence J. Gitman, Chad J. Zutter

**Question Details**

**8**- Risk and Return

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