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1) Consider the following two assets that have rates of return in three equally likely scenarios: Scenario M (market) A Strong Growth 15 9 Weak
1) Consider the following two assets that have rates of return in three equally likely scenarios:
Scenario | M (market) | A |
Strong Growth | 15 | 9 |
Weak Growth | 5 | -5 |
Recession | -5 | 5 |
a) What is the expected return of each asset?
b) What is the risk of each asset when viewed in isolation (standard deviation)?
c) Assuming that investors currently hold asset M, what is the risk of asset A in the portfolio sense (beta)?
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