The V olatility of a La r g e P o r t f olio Using the data in Table 11.1 a. Compute the annual returns for a portfolio with 25% invested in North Air 25% invested in West Air and 50% invested in Tex Oil. b. What is the lowest annual return for your portfolio in part a? How does it compare with the lowest annual return of the individual stocks or portfolios in Table 11.1?
Stock Returns
Portfolio Returns Year North Air West Air Tex Oil 1/2RN + 1/2RW 1/2RW + 1/2RT 2007 21% 9% -2% 15.0% 3.5% 2008 30% 21% -5% 25.5% 8.0% 2009 7% 7% 9% 7.0% 8.0% 2010 -5% -2% 21% -3.5% 9.5% 2011 -2% -5% 30% -3.5% 12.5% 2012 9% 30% 7% 19.5% 18.5% Average Return 10.0% 10.0% 10.0% 10.0% 10.0% Volatility 13.4% 13.4% 13.4% 12.1% 5.1%