Problem 2: Risk and Return (25 marks) The past four years of stock returns for WOW...

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Problem 2: Risk and Return (25 marks) The past four years of stock returns for WOW and COL are provided in the following table. The correlation between WOW and COL is 0.4. Year 2017 WOW COL 3.40% 9.10% 2018 5.80% -6.80% 2019 7.60% 18.50% 2020 2.30% -8.80% A. What is the average annual return for WOW and COL? B. What is the standard deviation of return for WOW and COL? C. Which stock would you invest? Explain. (4 marks) (6 marks) (4 marks) D. Given the expected return for WOW and COL calculated in part (a), what would be your portfolio return and standard deviation if you invested 50% of your capital in WOW and the remaining 50% in COL? (5 marks) E. What if you increase your capital invested in WOW from 50% to 75%? What is your portfolio return and standard deviation? Is this more or less favourable? Explain. (6 marks) Problem 2: Risk and Return (25 marks) The past four years of stock returns for WOW and COL are provided in the following table. The correlation between WOW and COL is 0.4. Year 2017 WOW COL 3.40% 9.10% 2018 5.80% -6.80% 2019 7.60% 18.50% 2020 2.30% -8.80% A. What is the average annual return for WOW and COL? B. What is the standard deviation of return for WOW and COL? C. Which stock would you invest? Explain. (4 marks) (6 marks) (4 marks) D. Given the expected return for WOW and COL calculated in part (a), what would be your portfolio return and standard deviation if you invested 50% of your capital in WOW and the remaining 50% in COL? (5 marks) E. What if you increase your capital invested in WOW from 50% to 75%? What is your portfolio return and standard deviation? Is this more or less favourable? Explain. (6 marks)