(b)Consider information given in the table below and answers the question asked thereafter:

State

Probability

Return on Stock A

Return on Stock B

A

0.15

10 %

9%

B

0.2

6 %

15%

C

0.05

20 %

10 %

D

0.18

5 %

-8 %

E

0.12

-10 %

20 %

F

0.30

8 %

5 %

i.Calculate expected return on each stock? On the basis of this measure, which stock you will choose?

ii.Calculate standard deviation of the returns on each stock? On the basis of this measure, which stock you will choose? iii. Calculate coefficient of variance of the returns on each stock? On the basis of this measure, which stock you will choose?

iv.Calculate covariance and coefficient of correlation between the returns of the stocks A and B.

v.Now suppose you have $100,000 to invest and you want to a hold a portfolio comprising of $35,000 invested in stock A and remaining amount in stock B. Calculate risk and return of your portfolio.

(c)Firm A reports a Profit Margin of 6.5% and a Total Asset Turnover Ratio of 3.25. Their total asset level is $8,500,000. Assume there are 700,000 shares outstanding and the PE ratio is 11. Also, assume the Return on Equity is 16%. Based on this, calculate the MV/BV ratio.