Using the data in the following table, consider a portfolio that maintains a 50 %...
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Accounting
Using the data in the following table, consider a portfolio that maintains a
50 %
weight on stock A and a
50 %
weight on stock B.
| Year | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 |
| Stock A | negative 5 |
| % | 7 |
| % | 6 |
| % | negative 3 |
| % | 3 |
| % | 13 |
| % | |
| Stock B | 21 |
| % | 29 |
| % | 23 |
| % | negative 3 |
| % | negative 8 |
| % | 31 |
| % |
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. Calculate the average of the average returns of the two stocks and compare it to the average return of the portfolio.
d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks.
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