Question: Ahmed Zahran is building a new portfolio that consists of two stocks, A and B. Stock A will represent 40% of his portfolio while stock B will represent the remaining 60%. The expected returns for 10 years, 2016 to 2025, are shown in the following table:
a. Calculate the expected portfolio return, rp, for each of the 10 years.
b. Calculate the average expected portfolio return over the 10-year period.
c. Calculate the standard deviation of the portfolio over the 10-year period.
d. How would you characterize the correlation of returns between the two stocks?
e. Discuss any benefits of diversification achieved by Ahmed through the creation of this portfolio.