Problem 7-12 Diversification

Here are the percentage returns on two stocks.

Month	Digital Cheese				Executive Fruit
January		13	%			7	%
February		4				2
March		7				5
April		9				15
May		5				1
June		5				7
July		3				7
August		9				5

a-1. Calculate the monthly variance and standard deviation of each stock. (Do not round intermediate calculations. Round your answers to 1 decimal places.)

a-2. Which stock is the riskier if held on its own?

multiple choice 1

• Digital Cheese

• Executive Fruit

b. Now calculate the variance and standard deviation of the returns on a portfolio that invests an equal amount each month in the two stocks. (Do not round intermediate calculations. Round your answers to 1 decimal places.)

c. Is the variance more or less than half way between the variance of the two individual stocks?

multiple choice 2

• more than the 50%-50%

• less than the 50%-50%