Year Stock C Returns - Year Stocks A Return Stock B Return

2008 32.00% 2008 -18.00% -14.50%

2009 -11.75 2009 33.00 21.80

2010 10.75 2010 15.00 30.50

2011 32.25 2011 -0.50 - 7.60

2012 -6.75 2012 27.00 26.30

Need help with H-J

F. Calculate (or Read from the computer screen) the average return, standard deviation, and coefficient of variation for Stock C.

G. Assume that the portfolio now consists of 33.33 percent Stock A, 33.33 percent Stock B, 33.33 percent Stock C. How does this composition affect the portfolio return, standard deviation and coefficient of variation versus when 50 percent was invested in A and in B?

H. Make some other changes in the portfolio, making sure that the percentages sum to 100 percent. For example enter 25% for Stock A, 25% for Stock B and 50% for Stock C. Notice that ^rp remains constant and that p changes. Why do these results occur?

I. In part b, you should see that the standard deviation of the portfolio decreased only slightly because Stocks A and B were highly positively correlated with each other. The addition of Stock C causes the standard deviation of the portfolio to decline dramatically, even though c=A=B. What does this change indicate about the correlation between Stock C and Stock A and B?

J. Would you prefer to hold a portfolio consisting only of Stocks A and B or a portfolio that also includes Stock C? If others react similarly, how might this fact affect the stocks' prices and rates of return?

Transcribed image text