The analysis of outcomes for sales and the associated rate of return on common stocks for companies
Question:
The analysis of outcomes for sales and the associated rate of return on common stocks for companies X and Y are shown below.You intend to form a portfolio by allocating $3750 of your total wealth of $5000 in Company X, and the remainder in Company Y.The covariance between the two companies is -.000927.
Decliningflatrising
Probability40%25%35%
% return X-0.4%10.8%21.7%
% return Y5.2%18.3%23.5%
a) What is the expected return and standard deviation for common stocks in each company? (2pts each) work can be done via calculator or excel
b.What is the portfolio return (3pts) and standard deviation (4pts) for this two-stock portfolio?In words, how does this compare with the individual returns and std. deviations of the stocks?(3pts)
Fundamentals Of Investing
ISBN: 9781292153988
13th Global Edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk