Using the data in the​ table, consider a portfolio that maintains a 35% weight on stock A and a 65% weight on stock B. a. What is the return each year of this​ portfolio? (2010-2015) 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.

Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter10: Stockholder's Equity
Section: Chapter Questions
Problem 93.3C
icon
Related questions
Question
Using the data in the​ table, consider a portfolio that maintains a 35% weight on stock A and a 65% weight on stock B.
a. What is the return each year of this​ portfolio? (2010-2015)
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.
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Year
2010
2011
2012
2013
2014
2015
Stock A
- 2%
11%
8%
- 7%
2%
9%
Stock B
24%
23%
26%
- 1%
- 13%
17%
Transcribed Image Text:Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 2010 2011 2012 2013 2014 2015 Stock A - 2% 11% 8% - 7% 2% 9% Stock B 24% 23% 26% - 1% - 13% 17%
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Knowledge Booster
Investment in Stocks
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
Fundamentals of Financial Management, Concise Edi…
Fundamentals of Financial Management, Concise Edi…
Finance
ISBN:
9781285065137
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Fundamentals of Financial Management, Concise Edi…
Fundamentals of Financial Management, Concise Edi…
Finance
ISBN:
9781305635937
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning