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  2. Assume that you currently have a portfolio that returns 19.5%. If you add this stock to the current portfolio, what will happen to the average return on the portfolio?

Assume that you currently have a portfolio that returns 19.5%. If you add this stock to the current portfolio, what will happen to the average return on the portfolio?

ASSIGNMENT

The Allied Group has acquired Kramer Industries and is now considering additional investments. They have determined that there is a firm that is a good fit for their portfolio, the Kramer firm of Montana. The firm was established in 1990 and has the following historical returns:

Kramer Industries

Year

Earnings

1990

(8% Loss)

1995

23%

2000

26%

2005

31%

2010

18%

Address all of the following questions:

**What was the average return for the stock over the period of 1990 through 2010?
**What was the standard deviation for the stock over this period?
**Assume that you currently have a portfolio that returns 19.5%. If you add this stock to the current portfolio, what will happen to the average return on the portfolio?
**Should Allied invest in the stock? Justify your response


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