Question
7. Consider the following situation: State of Economy Probability of State of Economy Returns if State Occurs Stock A Stock B Stock C Boom 50%
7. Consider the following situation:
| State of Economy | Probability of State of Economy | Returns if State Occurs | ||
| Stock A | Stock B | Stock C | ||
| Boom | 50% | 30% | 20% | 10% |
| Average | 30% | 10% | 10% | 10% |
| Recession | 20% | -30% | 10% | 10% |
The expected return on the market portfolio is 12% and the US Treasury bill yields 2%. The capital market is currently in equilibrium.
- Which stock is the riskiest among the three stocks? Which stock is the safest among the three stocks? Explain why.
- What is the standard deviation of a portfolio which is comprised of $8,400 invested in stock A, $3,600 in stock B, and $3,000 in Stock C?
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The Business Of Personal Finance
Authors: Joseph Calandro Jr, John Hoffmire
1st Edition
1032104562, 978-1032104560
