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Here are the percentage returns on two stocks
Here are the percentage returns on two stocks.
Month Digital Cheese Executive Fruit
January 14% 6%February -5 1 March 6 4 April 8 14 May -6 2 June 4 6 July -4 -4 August -7 -3
a-1) Calculate the monthly variance and standard deviation of each stock. (Do not round intermediate calculations. Round your answers to 1 decimal places.)
a-2) Which stock is the riskier if held on its own?
multiple choice 1
- Digital Cheese
- Executive Fruit
b) Now calculate the variance and standard deviation of the returns on a portfolio that invests an equal amount each month in the two stocks. (Do not round intermediate calculations. Round your answers to 1 decimal places.)
c) Is the variance more or less than half way between the variance of the two individual stocks?
multiple choice 2
- more than the 50%-50%
- less than the 50%-50%
Expert Solution
a-1) Variance of Digital Cheese = 53.2
Variance of Executive Fruit = 28.7
Standard deviation of Digital Cheese = 7.3
Standard deviation of Executive Fruit = 5.4
a-2) Digital Cheese is more riskier because it has higher standard deviation.
b) Variance of portfolio = 34.9
Standard deviation of portfolio = 5.9
c) Variance(34.9) is less than half way between the variance of the two individual stocks (((53.2+28.7)/2) = 40.9).
Correct option is 2) less than the 50%-50%
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