Question
(a) Mike Delgado, a Five Star analyst, came up with the following projection of common stock returns for SoHi Beverages Inc. for the next year
(a) Mike Delgado, a Five Star analyst, came up with the following projection of common stock returns for SoHi Beverages Inc. for the next year based on his assessment of the economy and the company. Using the following projected distribution of stock returns for SoHi, calculate the expected return and the standard deviation of returns. You must show your work for credit. Either underline or highlight your answer.
Probability Returns
0.2 10%
0.6 15
0.2 20
(b) (2 points) Is the standard deviation you calculated above a measure of systematic risk, unsystematic risk, or total risk? Explain why.
(c) (3 points) The stock of FinTek has the same distribution properties as the stock of SoHi (i.e., has the same distribution as shown in part (a)). If the two stocks are perfectly negatively correlated, what is the expected return and standard deviation of a portfolio that is weighted 60% in SoHi and 40% in FinTek? You must show your work for credit. Either underline or highlight your answer.
(d) (2 points) Is there another weighted combination of the two stocks that would yield a lower portfolio standard deviation than the one that you just calculated in part (c)? If so, what would that be?
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