4. Jamie Wong is thinking of building an investment portfolio containing two stocks, L and M. Stock L will represent 44% of thedollar value of the portfolio, and stock M will account for the other 56%. The historical returns over the last 6 years,2013-2018, for each of these stocks are shown in the following table 4.a. Calculate the actual portfolio return, r,, for each of the 6 years.b. Calculate the average return for each stock and for the portfolio over the 6-year period.c. Calculate the standard deviation of returns for each asset and for the portfolio. How does the portfolio standard deviationcompare to the standard deviations of the individual assets?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.Review OnlyClick on the icon to see the Worked Solution.a. The average portfolio return for 2013 is%. (Enter as a percentage and round to one decimal place.)The average portfolio return for 2014 is%. (Enter as a percentage and round to one decimal place.)The average portfolio return for 2015 is%. (Enter as a percentage and round to one decimal place.)The average portfolio return for 2016 is%. (Enter as a percentage and round to one decimal place.)The average portfolio return for 2017 is%. (Enter as a percentage and round to one decimal place.)The average portfolio return for 2018 is%. (Enter as a percentage and round to one decimal place.)b. The average return for Asset L is%. (Enter as a percentage and round to two decimal places.)The average return for Asset M is%. (Enter as a percentage and round to two decimal places.)The average return for for the portfolio is%. (Enter as a percentage and round to two decimal places.)c. The standard deviation for Asset L is%. (Enter as a percentage and round to two decimal places.)The standard deviation for Asset M is%. (Enter as a percentage and round to two decimal places.)The standard deviation for the portfolio is%. (Enter as a percentage and round to two decimal places.)d. How would you characterize the correlation of returns of the two stocks L and M? (Select the best answer below.)O A. Asset L and Asset Mare not correlated, since they have different values for standarddeviation.O B. Asset L and Asset M are slightly negatively correlated.O C. Asset L and Asset M are highly positively correlated.O D. Asset L and Asset M are highly negatively correlated.e. Discuss any benefits of diversification achieved by Jamie through creation of the portfolio. (Select the best answerbelow.)O A. There is a significant benefit from diversification because the risk is higher than that of eitherstock and the average return is higher than that of either stock.O B. There is a significant benefit from diversification because the risk is higher than that of eitherstock and the average return is somewhere in the middle.O C. There is a significant benefit from diversification because the risk is lower than that of eitherstock and the average return is lower than that of either stock,O D. There is a significant benefit from diversification because the risk ilower than that of eitherhttps://xlitemprod.pearsoncmg.com/api/vl/print/en-us/finance3/1311/13/2020Print Questionsstock and the average returnsomewhere in the middle.4: Data Table(Click the icon herein order to copy the contents of the data table below into a spreadsheet.)Expected ReturnYearStock LStock M201313%23%201413192015151820161816201718132018218

Question

Accepted Answer

Actual Portfolio Return, Rp for 6 year-
Rp= RL*WL + RM*WM
2013= (13*44%+23*56%) =18.6%
 
2014=…