consider a portfolio that maintains a 75% weight on stock A and a 25% 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 enter your response here% enter your response here% enter your response here% enter your response here% enter your response here% enter your response here% 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 enter your response here%. (Round to two decimal places.) Part 3 The volatility of the portfolio is enter your response here%. (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 enter your response here%. (Round to two decimal places.) Part 5 The average annual return for stock B is enter your response here%. (Round to two decimal places.) Part 6 The (weighted) average of the average returns of the two stocks is enter your response here%. (Round to two decimal places.) Part 7 The volatility of the portfolio is enter your response here%. (Round to two decimal places.) Part 8 d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks. (Select from the drop-down menu.) The portfolio has a ▼ higher lower volatility than the average volatility of the two stocks because some of the idiosyncratic risk of the stocks in the portfolio is diversified away. Click on the following icon in order to copy its contents into a spreadsheet.) Year 2010 2011 2012 2013 2014 2015 Stock A -9%% 5% 3% -8% 3% 15% Stock B 29% 1% 20% -5% -11% 22%

consider a portfolio that maintains a 75% weight on stock A and a 25% 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 enter your response here% enter your response here% enter your response here% enter your response here% enter your response here% enter your response here% 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 enter your response here%. (Round to two decimal places.) Part 3 The volatility of the portfolio is enter your response here%. (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 enter your response here%. (Round to two decimal places.) Part 5 The average annual return for stock B is enter your response here%. (Round to two decimal places.) Part 6 The (weighted) average of the average returns of the two stocks is enter your response here%. (Round to two decimal places.) Part 7 The volatility of the portfolio is enter your response here%. (Round to two decimal places.) Part 8 d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks. (Select from the drop-down menu.) The portfolio has a ▼ higher lower volatility than the average volatility of the two stocks because some of the idiosyncratic risk of the stocks in the portfolio is diversified away. Click on the following icon in order to copy its contents into a spreadsheet.) Year 2010 2011 2012 2013 2014 2015 Stock A -9%% 5% 3% -8% 3% 15% Stock B 29% 1% 20% -5% -11% 22%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 13P

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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	enter your response here%	enter your response here%	enter your response here%	enter your response here%	enter your response here%	enter your response here%

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

enter your response here%.