Reference no: EM131911732

The table below shows annual returns for Merck and one of its major competitors, Eli Lilly. The final column shows the annual return on a portfolio invested 50% in Lilly and 50% in Merck. The portfolio’s return is simply a weighted average of the returns of the stocks in the portfolio as shown in the example calculation at the top of the table. Year Eli Lilly Merck 50-50 Portfolio 1994 15.4% 14.9% 15.1% (0.5 x 15.4% + 0.5 x 14.9%) 1995 77.2% 76.4% 1996 32.6% 24.0% 1997 93.6% 35.5% 1998 29.1% 41.2% 1999 -24.3% -7.4% 2000 41.9% 41.7% 2001 -14.4% -35.9% 2002 -17.6% -1.1% 2003 13.1% -11.2% Std. Dev. a. Fill in the blanks by calculating the 50-50 portfolio’s return each year from 1995-2003 and then plot this on the graph you created for part (a). How does the portfolio return compare to the returns of the individual stocks in the portfolio? b. Plot a graph similar to Figure 6.7 showing the returns on Merck, Lilly, and the portfolio, each year. c. Calculate the standard deviation of Merck, Lilly, and the portfolio and comment on what you find.