Chapter 11, Problem 6P

a)

Summary Introduction

To determine: The returns of each year from the portfolio.

Introduction:

Portfolio refers to a set of financial investments owned by an investor. The portfolio of investments includes debentures, stocks, bonds, and mutual funds.

Return is a loss or gain incurred on the investment made by the investors. It is expressed in terms of percentage.

b)

Summary Introduction

To determine: The average return and volatility of the portfolio.

Introduction:

Average return of a particular investment is the average of the realized returns for each period.

c.

i)

Summary Introduction

To discuss: The average return of the portfolio is equivalent to the mean of the average returns of both stocks in the portfolio.

ii)

Summary Introduction

To determine: The portfolio’s volatility is equal to the same result of variance of the portfolio.

Introduction:

Stock is a type of security in a company that denotes ownership. A company can raise the capital by issuing stocks.

Summary Introduction

To discuss: The reason why the portfolio has a lower volatility compared to the average volatility of both stocks.