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Question 1: R&r
| Stock J | Dividends | Stock Price |
| Year 1 | - | $40.00 |
| Year 2 | $2.00 | $49.50 |
| Year 3 | $2.20 | $53.20 |
| Year 4 | $2.40 | $52.75 |
| Year 5 | $2.60 | $55.80 |
| Stock Fillion | Dividends | Stock Price |
| Year 1 | - | $45.00 |
| Year 2 | $3.10 | $51.05 |
| Year 3 | $3.20 | $58.95 |
| Year 4 | $3.90 | $57.92 |
| Year 5 | $4.05 | $50.10 |
a) Find the following for Fillion and Jessica and a portfolio with 60% invested in Fillion and 40% in Jessica:
- Variance
- Standard Deviation
- Average Variance
- Average Standard Deviation
Find E(r).
b) Repeat (a) with 50% invested in each stock. Do we guess that the correlation coefficient will be closer to -0.95, 0.0, or 0.95?
c) If stocks are added at random, which of the following is true?
- Eventually portfolio variance will be reduced to 0
- Eventually portfolio variance will be reduced to a non-zero number and wont decrease further
- Portfolio variance will stay constant
- Portfolio variance will increase with each added stock
Answer & Explanation
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