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QUESTION 2 Calculate the annual returns and standard deviation of annual returns for the following...

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QUESTION 2 Calculate the annual returns and standard deviation of annual returns for the following portfolio. Assume that a correlation coefficient of 0.235 between the returns of the two stocks. (Calculations must be done manually. Show all workings: (a) Portfolio : P1 P2 P3 P4 P5 P7 P8 P9 P10 P11 Stock A 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 100 % Stock B 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100 % Return ERP ERP ERP ERP ERP ERP ERP ERP ERP1 ERP1 ERP11 2. 3 4 5 0 S.D. SDP SDP SDP SDP SDP SDP SDP SDP SDP1 SDP1 SDP11 2 3 5 6 7 8 0 (22 marks) (b) Which of the stock combination can achieve the objective of diversification. Justify your answer. (4 marks) B D E F G Stock A Year C Annual Return (%) Stock A Stock B 2016 0.004660 2017 -0.017076 2018 0.049413 2019 -0.020499 2020 0.044580 2021 0.058566 29.42 Details Average Annual Return(AAR) Standard Deviation Co-efficient of Variation(CV) Correlation coefficient between H Stock B 1.99 3.52 1.7691 47.87 1.627 -0.087378 0.505689 -0.042347 0.016377 0.208314 1.164703

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