Assume that your uncle holds just one stock, East Coast Bank (ECB), which he thinks has...

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Assume that your uncle holds just one stock, East Coast Bank(ECB), which he thinks has very little risk. You agree that thestock is relatively safe, but you want to demonstrate that his riskwould be even lower if he were more diversified. You obtain thefollowing returns data for West Coast Bank (WCB). Both banks havehad less variability than most other stocks over the past 5years.
Year               ECB                WCB
2004               40.00%           40.00%
2005-             10.00%           15.00%
2006               35.00%           -5.00%
2007               -5.00%           -10.00%
2008               15.00%           35.00%
a. What is the expected return andrisk of each stock?
b. Measured by the standard deviationof returns, by how much would your uncle's risk have been reducedif he had held a portfolio consisting of 60% in ECB and theremainder in WCB? In other words, what is the difference betweenportfolio's standard deviation and weighted average of components'standard deviations? (Hint: check the example on page 11-12 on mynote).
If this problem can be done usingexcel, in a way that I can understand the steps I need to take as Igo.

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abPortfolio Weight of ECB 60 and Portfolio Weight See Answer

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Assume that your uncle holds just one stock, East Coast Bank(ECB), which he thinks has very little risk. You agree that thestock is relatively safe, but you want to demonstrate that his riskwould be even lower if he were more diversified. You obtain thefollowing returns data for West Coast Bank (WCB). Both banks havehad less variability than most other stocks over the past 5years.Year ECB WCB2004 40.00% 40.00%2005- 10.00% 15.00%2006 35.00% -5.00%2007 -5.00% -10.00%2008 15.00% 35.00%a. What is the expected return andrisk of each stock?b. Measured by the standard deviationof returns, by how much would your uncle's risk have been reducedif he had held a portfolio consisting of 60% in ECB and theremainder in WCB? In other words, what is the difference betweenportfolio's standard deviation and weighted average of components'standard deviations? (Hint: check the example on page 11-12 on mynote).If this problem can be done usingexcel, in a way that I can understand the steps I need to take as Igo.