In the example developed in Table 7.3, suppose there are four identical firms with the same return pattern, and the investor again has $200 to invest.
(a) Compute the portfolio variance associated with a strategy of investing $50 in each stock. To do this you can use a property of the variance of a portfolio: when the stock prices move independently, the variance of the portfolio of stocks is the sum of the variance of each stock. So compute the variance of each stock, where $50 is invested in each, and the variance of the portfolio will be four times this amount.
Table 7.3
