Question

$(20$ marks$)$

You are provided the following percentage returns for Stock A and Stock B:

$\backslash$table$[[$Year$,2018,2019,2020,2021,2022,2023],[$A$,-9,16,5\mathrm{.}5,-5,5,13],[$B$,15,9,-10,4,-6,10\mathrm{.}5]]$

Required:

a$.$ Compute the average $($expected$)$ return and volatility $($standard deviation$)$ for Stock A and Stock $B.$

b$.$ Determine the covariance and the correlation coefficient between the returns on Stock A and returns on Stock B$.$

c$.$ Calculate the expected return and standard deviation for a two$-$stock Portfolio $P,$ which comprise $50\mathrm{.}28\%$ of funds invested in Stock A$,$ and the balance funds in Stock B$.$

d$.$ A second two$-$stock Portfolio Q$,$ comprise $90\%$ of funds invested in Stock B and the balance funds in Stock A$.$ Compare the results with Portfolio $P$ and discuss which portfolio is preferred.