1. If the correlation between two stocks is +1, then a portfolio combining these two stocks will have a standard deviation that is: a. less than the weighted average of the two individual standard deviations. b. greater than the weighted average of the two individual standard deviations. c. equal to the weighted average of the two individual standard deviations. d. less than or equal to average standard deviation of the two weighted variances, depending on other information. e. None of the above.
2. What is the coefficient variation on a stock given the following information? Note, you must compute expected return and standard deviation before computing CV. State Probability Return Boom 10% 16% Normal 60% 11% Recession 30% -8% a. 1.57 b. 1.70 c. 1.14 d. 1.26 e. 0.63