Using the data in the following table,

, consider a portfolio that maintains a

40%

weight on stock A and a

60%

weight on stock B.

a. What is the return each year of this portfolio?

b. Based on your results from part

(a),

compute the average return and volatility of the portfolio.

c. Show that (i) the average return of the portfolio is equal to the (weighted) average of the average returns of the two stocks, and (ii) the volatility of the portfolio equals the same result as from the calculation in Eq. 11.9.

d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks.

Question content area bottom

Part 1

a. What is the return each year of this portfolio?

Enter the return of this portfolio for each year in the table below: (Round to two decimal places.)

Year	2010	2011	2012	2013	2014	2015
Portfolio	12.2012.20%	21.0021.00%	15.8015.80%	negative 7.207.20%	negative 4.004.00%	23.4023.40%

Part 2

b. Based on your results from part

(a),

compute the average return and volatility of the portfolio.The average return of the portfolio is

10.2010.20%.

(Round to two decimal places.)

Part 3

The volatility of the portfolio is

12.8912.89%.

(Round to two decimal places.)

Part 4

c. Show that (i) the average return of the portfolio is equal to the (weighted) average of the average returns of the two stocks, and (ii) the volatility of the portfolio equals the same result as from the calculation in Eq. 11.9.

The average annual return for stock A is

2.502.50%.

(Round to two decimal places.)

Part 5

The average annual return for stock B is

15.3315.33%.

(Round to two decimal places.)

Part 6

The (weighted) average of the average returns of the two stocks is

10.2010.20%.

(Round to two decimal places.)

Part 7

The volatility of the portfolio is

enter your response here%.

(Round to two decimal places.)

Need C and D please