Two stocks: L & M. Stock L will represent 65% of the dollar value of the portfolio, and stock M will account for the other 35%. The historical returns over the next 6 years 2013-2018 are provided:

L M

2013: 14% 22%

2014: 15% 20%

2015: 16% 18%

2016: 18%. 16%

2017: 19%. 14%

2018: 21%. 12%

a.) CALCULATE THE ACTUAL PORTFOLIO RETURN rp FOR EACH OF THE 6 years

b.) CALCULATE THE EXPECTED VALUE OF THE PORTFOLIO RETURNS rp , over the 6 year period

c.) CALCULATE THE STANDARD DEVIATION of expected portfolio returns orp over the 6 year period

D. How would you characterize the correlation of returns of the two stocks L & M

e.) DISCUSS ANY BENEFITS OF DIVERSIFICATION ACHIEVED BY JAMIE THROUGH CREATION OF THE PORTFOLIO

a. Calculate the actual portfolio return, 'p, for each of the 6 years. b. Calculate the expected value of portfolio returns, 'p, over the 6-year period. c. Calculate the standard deviation of expected portfolio returns, or 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